Myanmar announced Wednesday an overhaul of its antiquated currency system as part of burgeoning reforms to modernise an economy left in disarray by decades of military rule and isolation.
The impoverished nation will adopt a managed floating exchange rate from April 1, allowing market forces to determine the value of the kyat while leaving room for the central bank to influence its value, state media said.
It described the move as the first step toward unifying the nation's various exchange rates.
"It's a very positive move. It injects a degree of rationality into policymaking that was notable by its absence in the previous regime and for much of the past 50 years," said Sean Turnell, a Myanmar economic expert at Macquarie University in Sydney.
"It removes many of the difficulties and corruption incentives that have been in place with this dual system," he added.
A simplified currency regime will facilitate trade and investment as Myanmar gradually opens up.
"It will certainly help foreign investors," said Turnell.
While such investors did not use the official rate in practice in any case, "this meant they were constantly vulnerable to the 'extra-legal' activities they had to engage in," he added.
Following the end of almost half a century of junta rule last year, the country formerly known as Burma now has a nominally civilian government whose ranks are filled with ex-generals.
The new regime has surprised even its critics with a series of reforms, and the currency revamp is its first major move to modernise an economy weakened by decades of mismanagement and international sanctions.
Myanmar has a highly complex exchange rate regime, with official, semi-official and unofficial rates.
The official government rate – which is widely ignored – is fixed at around just six kyat to the dollar, while in stark contrast the rate on the flourishing black market stands at about 800 per dollar.
The official rate will now be replaced with a market-determined rate, according to a central bank announcement published in state mouthpiece The New Light of Myanmar. It did not say at what rate the kyat would be floated or exactly how it would be managed.
Experts saw the multiple-rate system as a way for the regime to funnel revenues from natural gas sales into secret accounts by recording payments at six kyat per dollar and then exchanging them at the much higher informal rate.
"Burma's public accounts have really been starved of money because state-owned enterprise earnings have just been filtered off into various other accounts," said Turnell.
"In a sense this is a real signal that the new government is serious about reform because this closes off a channel of money that the previous generals were only too eager to get hold of."
At the invitation of the new government, a team of experts from the International Monetary Fund visited Myanmar in October to offer advice on reforming the forex market and unifying its multiple rates.
The unusual request by a regime that regards international institutions with suspicion was seen an indication of the gravity of the currency market disarray and a tentative sign it is warming to modern economic reforms.
IMF deputy managing director Naoyuki Shinohara told reporters in Bangkok on Tuesday that the Washington-based institution was helping Myanmar to build a strong financial system.
"Our activity in Myanmar is basically in technical assistance, capacity building, especially in the area of central banking, exchange rate policy and statistics," he said.
"In those basic areas we are trying to work together with the authorities in Myanmar to strengthen capacity."
The currency move takes effect on the same day as by-elections in which opposition leader Aung San Suu Kyi is standing for a seat in parliament.
