Why newly liberated states of Myanmar need new monetary policy

By Khaing Aung Aung, GAN

Shortread: opinions                                                                                  February 17, 2025

Old Myanmar Banknotes (photocrd)

The newly liberated states of Myanmar are at a critical juncture in their political and economic development. After decades of conflict, authoritarian rule, and economic mismanagement, these regions now have the opportunity to rebuild their economies and establish governance structures that prioritize the well-being of their citizens. A key component of this rebuilding process is the formulation and implementation of a new monetary policy tailored to the unique challenges and opportunities these states face. Below are several reasons why a new monetary policy is essential for the newly liberated states of Myanmar:

1. Addressing Hyperinflation and Currency Instability

·     Many regions in Myanmar have experienced severe economic instability, including hyperinflation and currency devaluation, due to years of mismanagement by the central government and the use of the Myanmar Kyat (MMK) as the primary currency. A new monetary policy could introduce a stable and reliable currency system, either by reforming the existing currency or adopting a new regional currency, to restore public trust and facilitate economic transactions.

2. Promoting Economic Sovereignty

·     The newly liberated states need to assert their economic sovereignty to reduce dependence on the central government in Naypyidaw. A new monetary policy would allow these regions to control their money supply, interest rates, and inflation, enabling them to respond more effectively to local economic conditions and priorities.

3. Stimulating Economic Growth and Development

·     A well-designed monetary policy can stimulate economic growth by ensuring access to credit for businesses and individuals, controlling inflation, and maintaining exchange rate stability. This is particularly important for regions that have been marginalized and underdeveloped due to decades of conflict and neglect.

4. Facilitating Trade and Investment

·     A stable and predictable monetary environment is essential for attracting foreign investment and fostering trade. A new monetary policy could establish a credible financial system that encourages both domestic and international investors to participate in the economic development of these regions.

5. Addressing Inequality and Poverty

·     The newly liberated states are likely to face significant income inequality and high levels of poverty. A progressive monetary policy can be designed to prioritize financial inclusion, ensuring that marginalized communities have access to banking services, credit, and other financial tools to improve their livelihoods.

USD to MMK Exchange Rate (photocrd)

6. Rebuilding Trust in Financial Institutions

·     Years of conflict and economic mismanagement have eroded public trust in financial institutions. A new monetary policy, supported by transparent and accountable governance, can help rebuild this trust by ensuring that financial systems are fair, inclusive, and responsive to the needs of the population.

7. Managing Transitional Challenges

·     The transition from conflict to peace often involves significant economic disruptions, including the reintegration of displaced populations, demobilization of combatants, and reconstruction of infrastructure. A new monetary policy can provide the necessary financial tools to manage these challenges effectively.

8. Regional Integration and Cooperation

·     The newly liberated states may seek to strengthen economic ties with neighboring countries or regions. A new monetary policy can facilitate cross-border trade and investment by establishing favorable exchange rate regimes and reducing transaction costs.

9. Countering Illicit Financial Flows

·     In the absence of a robust monetary policy, illicit financial activities such as money laundering, smuggling, and the use of informal or black-market currencies can flourish. A new monetary policy can help formalize the economy and reduce the prevalence of such activities.

10. Laying the Foundation for Long-Term Stability

·     A well-crafted monetary policy is not just about addressing immediate economic challenges; it is also about laying the foundation for long-term stability and prosperity. By establishing sound monetary principles early on, the newly liberated states can avoid the pitfalls of economic mismanagement and build a resilient economy.

Two Old Arakanese Coins (photocrd)

Key Considerations for a New Monetary Policy

·     Currency Choice: Deciding whether to adopt a new regional currency, continue using the Myanmar Kyat, or explore alternatives like a currency board or dollarization.

·     Central Bank Independence: Ensuring that the monetary authority is free from political interference and operates transparently.

·     Inflation Targeting: Setting clear inflation targets to maintain price stability.

·     Financial Inclusion: Designing policies that ensure access to financial services for all citizens, including those in rural and marginalized areas.

·     Capacity Building: Investing in the training and development of financial professionals to manage the new monetary system effectively.

In conclusion, the newly liberated states of Myanmar have a unique opportunity to redefine their economic future. A new monetary policy is not just a technical necessity but a cornerstone of their broader efforts to achieve peace, stability, and prosperity. By addressing the specific needs of their populations and learning from the mistakes of the past, these states can build a financial system that supports sustainable development and improves the lives of their citizens.