Inflation fears prompted by K10,000 notes
An announcement in state media that a new version of the K10,000 note will be released has led to fears of inflation, particularly as the government has yet to state the number of bills to be circulated.
The Central Bank of Myanmar will issue K10,000 notes with a new type of shiny emerald number, a new watermark image of a white lotus and a protective layer of varnish on both sides of the bank note, according to the notice on May 29.
The new notes are more durable and will be more difficult to counterfeit, according to the announcement, which also said that their introduction will not affect the legal tender status of the old notes. They will be released into circulation on July 1 according to the Ministry of Information.
The central bank issued the K5000 note in 2009, the K10,000 note in 2012 and a new version of the K5000 note in 2014.
The most frequently forged note is the K5000, according to bank staff. They said that since the flow of capital is mostly dependent on cash, notes in bad condition and counterfeit notes can cause problems.
Every year there is news that people are forging bigger and more notes, said economist U Hla Maung. Because of this, the government will issue new notes for security reasons, he said.
“People suspect that news has been fabricated by the government. The government should announce the exact amount they will issue, to make it clear it will not lead to inflation, as people don’t know the reality,” he said.
Suspicions have been raised, as the government hasn’t confirmed the amount to be injected into current circulation, or how it compares to the country’s GDP.
The timing of the new note coincides with growing concerns about the budget deficit. Myanmar will run a budget deficit equivalent to 5.22 percent of gross domestic product (GDP) in fiscal year 2016, according to state media. The forecast exceeds the 5pc target recommended by the International Monetary Fund (IMF) earlier this year.
People worry about rising tax rates or fines as the government tries to increase its revenue to lower the deficit, said U Hla Maung.
If the government prints too much money, the people will suffer, particularly those in the middle and lower income brackets, according to economic advisor U Zaw Win Pe. “If the government chooses to print money, the budget deficit becomes worse,” he said.
Myanmar has had long periods of hyperinflation, due largely to a government tendency to print money to fund projects or plug deficits. Between 2001 and 2010, inflation averaged 23pc, according to IMF statistics.
Ministry of Commerce advisor U Maung Aung said that while the public will still be able to use their existing K10,000 notes, the government and banks will dispose of some of the old-style bills.
“So it could possibly indicate an inflationary pressure, but people’s worries are due more to rumour than to fact,” he said.
As the interest rates offered by banks are less than inflation, there is little incentive for people to keep their money in the banks, he said. The inflation rate is forecast at around 8.5pc in fiscal year 2016, while the interest rate offered by commercial banks is 8.25pc. State-owned banks offer 8pc.
The authority to print new bills has been in the hands of the Central Bank of Myanmar since it became autonomous in 2013. However, the process remains opaque and the Central Bank does not publicly declare how much money it prints.
(Quote from the Myanmar times online website on 1 June 2015 )