Transition from black to official markets for foreign exchange in Myanmar

Discussion Papers

No.511

by KUBO Koji

March 2015

ABSTRACT

We address the puzzle why the black market for foreign exchange thrives in Myanmar despite the successful unification of multiple exchange rates. A closer look at the black market reveals that its enduring competitiveness stems from its lower transaction costs. A question arising from this observation is how the official market, namely banks, can compete with and replace the black market. Our empirical analysis based on an original questionnaire survey of private export firms regarding their choices of currency trading modes suggests that banks can attract exporters by exploiting the economies of scope between currency trading and lending.


Keywords: Myanmar, exchange rate unification, black market for foreign exchange, economies of scope in banking
JEL classification:  O24, O53, E26

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