File Photo: AFP
Mizzima
The Central Bank of Myanmar announced a crackdown on informal currency exchange operations, commonly known as Hundis, and unlicensed digital currency trading.
The Central Bank reported that from 25 to 29 May it arrested 12 people involved in informal currency exchanges and froze 36 bank accounts and 39 online payment accounts associated with illegally exchanging dollars.
The arrested people will be prosecuted under the Anti-Money Laundering Law and the Financial Institutions Law, according to the Central Bank. The move is part of an ongoing effort to curb illegal financial activities and regulate foreign currency exchanges within the country.
“Hundi operators have been tracked for about three or four days now. Some have stopped trading. They are now holding dollars. Some hundi operators now only trade with people they can trust”, said someone working for an official money exchange.
Though regulations allow private domestic banks to sell US dollars to individuals traveling abroad, recent enforcement actions have impacted the availability of dollars. Someone who went to buy US dollars at a private bank on 30 May reported that they could not purchase the dollars they needed.
“I could not purchase the dollars I needed for medical treatment abroad”, they said.
According to “Underground banking” and Myanmar’s changing hundi system by Rhys Thompson: “Hundi transactions operate much like “standard” money transfers. The sender visits a hundi operator, giving them money and details of an intended recipient in a specific location. The operator contacts a partner in that location and instructs them to pay the nominated recipient the agreed amount.
“During these transactions, no money physically changes location. Instead, operators send payment instructions to their partners, who honour it by paying the money to the intended recipient, who is often identified through a unique code. As no money is sent, but cash is still paid out, a debt is formed (and later settled) from the predominantly one way transactions between operators.”
The hundi system has been in use in Myanmar since about the 1850s. It has thrived because it has always offered simpler ways to exchange money and better exchange rates than official channels. The difference in exchange rates between the hundi system and official channels has become far more pronounced since the junta took over and started setting its own exchange rates.
At 12:30 PM on 30 May, the exchange rate of one US dollar on the black market soared to 4,780 kyats, before dropping to 4,680 kyats later in the afternoon. Compared to this the Myanmar Central Bank’s official exchange rate was 2,100 kyats to the dollar, meaning that people using official exchangers would get less than half the kyats they would get for the same amount of dollars from a hundi operator.
With such large discrepancies in exchange rates it is unsurprising that most Myanmar nationals abroad favour using the hundi system over official exchanges.
In a related move, the Central Bank revoked the licenses of several foreign exchange counters in late April 2024 for not complying with regulations. This action contributed to a sharp increase in the dollar exchange rate by the end of May.
The crackdown reflects the military regime’s continued efforts to tighten its control over financial activities in Myanmar, amidst the ongoing political turmoil.
