Edwin Vanderbruggen of VDB Loi in Yangon looks at foreign exchange licenses
Back in May this year, the Central Bank of Myanmar (“CBM”) circulated a letter indicating that private parties and government agencies should no longer use foreign currency for transactions within Myanmar (“Letter 904”). This was followed up last week with a more drastic step whereby the CBM apparently cancelled the “Foreign Exchange Acceptor and Holder License” (“FEAH License”) of the entire private sector (“Letter 10/365”).
Predictably, the move has caused confusion. Some banks refused to take cash deposits from airlines and telecoms. A few companies rejected invoices made out in US dollar.
What is this “Foreign Exchange Acceptor and Holder Licence” which has been cancelled?
The FEAH License is one of three main types of foreign exchange licenses. In fact, it is the only type of license the CBM issued to general enterprises, i.e. companies who are not banks or money changers. The history of the FEAH License started under the Foreign Exchange Regulation Act of 1947 (FERA 1947). Then, specific permission from the authorities was necessary for any use of foreign currency, except for Authorized Dealers. Such permission has been granted going back to 1993. More than 1,500 businesses and organizations who received foreign currency as part of their business, such as travel and tours companies, hotels, gems and jewellery business, restaurants and souvenir shops.
What most people lose sight of, is that the FEAH License is specifically a license to receive foreign currency bank notes. So, actual physical cash. This may not be so clear from the in the meantime forgotten regulation, but it is still quite clear from the text of the FEAH License itself.
Why all of this does not matter (much)
The FEAH Licenses are connected with the pre-2012 Myanmar forex system. In the meantime, the new FEMA 2012 was issued, significantly altering the rights of Myanmar residents to hold foreign bank notes (up to $10,000 worth, presently), and the right to open foreign currency bank accounts with Authorized Dealers (the selected banks). Pretty much all foreign owned and locally owned businesses may since FEMA 2012 open and operate a foreign currency bank account, as long as the bank account is with a therefore licensed bank.
So, basically, the same FEAH Licenses lost a lot of their relevance from 2012 onwards. That is to say, as from 2012 onwards any person can open a foreign currency bank account, the need for the FEAH License is much reduced. But not eliminated. The cash (actual physical bank notes) limit with a FEAH License is much higher (often $50,000 or more instead of the general $10,000). So, if you’re in need of keeping larger amounts of cash around, as many local businesses like to do, you still needed and wanted an FEAH License.
Anyway, the cancelling of the FEAH Licenses, which are entirely cash-oriented, fits the CBM’s plan to reduce demand for cash notes. Letter 10/365 states as much: “This measure is aimed at reducing the making of payments in cash […]”.
Who is really affected?
Obviously, the FEAH Licensees just lost their license and they are after 30 November 2015 no longer allowed to do what the license permitted. That is, they can’t take cash notes and hold the cash notes up to a ceiling, for instance $50,000, without depositing that cash in a bank account.
Are foreign invested companies losing their right to receive and collect foreign currency?
Most foreign owned companies don’t have or need a FEAH License. Under the FEMA 2012, anyone who legally (remember this word) receives foreign currency remittances in Myanmar may do so using their foreign currency bank account. What is more, the Foreign Investment Law 2012 and the Foreign Investment Rules provide in various rights for foreign investors provides in specific additional rights for those with a permit from the Myanmar Investment Commission.
The real problem
So, the problem is not that this FEAH License is gone. The problem is that it remains unclear in which cases it is legally allowed (here we are) for businesses operating within Myanmar to invoice, pay and receive payment in foreign currency, or when they must use MMK. We are back at the core question. We know since Letter 904 that the CBM does not want foreign currency used in domestic transactions. Letter 10/365 underlines that once more.
But Letter 904 nor Letter 10/365 indicate how this is supposed to be achieved. The normative content of Letter 904 is just not there. Letter 904 speaks of asking the Ministries to take the necessary steps, without giving us any information on what must be done. Whatever these measures might be, obviously the private sector cannot implement them as there are none at this time. Until that time, and this time will come, our view is that businesses can quote, contract, invoice and pay in foreign currency, even within Myanmar.
Why can’t we just apply Letter 904 and start using MMK from now on?
First of all, because Letter 904 does not actually create a legal obligation for private enterprises to do so. Changing the currency and thus the price to a contract in force is very controversial between the contract parties. There is always a winner and a loser. The loser will resist the change. So, you must have a clear legal basis to oblige everyone to play along. Letter 904 does not provide this. Neither does Letter 10/365, by the way, as it just cancels the FEAH License. Too many questions remain unanswered. You can’t implement a massive game change in a country’s financial policy based on a letter with two paragraphs.
How do we fix this?
There is a great need for clarity in the Myanmar regulatory framework of foreign exchange. We are a proponent of a comprehensive and detailed regulation providing a clear set of rules for businesses, officials and banks to follow. As the consternation of the past week has demonstrated, foreign exchange is an area with a lot of misunderstandings and lack of reliable information.
The time will come that one can only use MMK within Myanmar, as is the case in other countries. When that time comes, to avoid unnecessary turbulence, we modestly suggest this is brought about with a comprehensive, all-encompassing and clear regulation where the public can find sufficient details to answer their many foreign exchange questions.
VDB Loi
Myanmar
About the author
Edwin Vanderbruggen is a senior partner of law and advisory firm VDB Loi in Myanmar.