Mar 4, 2016

Banks may ship millions in cash overseas

They are considering clubbing together to ship large amounts of US dollars to their offshore bank accounts as the result of a new Central Bank policy toward physical notes.

The Central Bank recently stopped accepting physical dollar deposits from commercial banks, said several bankers at private lenders, who were not aware of why the Central Bank had adopted this policy.

U Win Thaw, director general of the Central Bank’s Foreign Exchange Management Department, however, said that the Central Bank always explains new policies at meetings to which all banks are invited.

The recent decision against accepting physical dollars was no exception, he added, suggesting that some officials who attended that meeting may not have explained the issue to their staff.

U Win Thaw could not say when the meeting had taken place. Bankers said that the policy was introduced in the last few weeks.

Banks also cannot spend their extra dollars on trade. They are now only allowed to provide export-import funding through overseas electronic Nostro accounts, not through physical cash, said officials at private banks.

Although this makes Myanmar’s banking system more modern, it leaves some commercial banks in a difficult position. Some have large amounts of physical currency they now have difficulty using, said Asia Green Development Bank’s deputy managing director U Soe Thein.

“In the past the bank accepted notes,” he said. “Now it doesn’t and so if you have piled up [foreign] currency you have to manage it somehow.”

He said some banks were thinking about a currency shipment by plane – transferring the money to accounts held with offshore banks. These offshore bank accounts are typically with Singaporean lenders, bankers said.

Bankers at other lenders confirmed that currency shipments were being discussed, and U Win Thaw also suggested that this was an option for banks with lots of foreign currency.

The Central Bank is aware of the issue and plans to help the banks, but the process of shipping currency is not straightforward, said an AYA Bank official.

U Win Thaw did not respond by press time to additional questions about how exactly the Central Bank could help.

Dollar notes are not particularly heavy. Not including packaging, a shipment of US$10 million made up of $100 bills would weight just shy of 220 pounds (100 kilograms), according to data from the Federal Reserve Bank Services website.

But the attendant costs of transport mean unless Myanmar’s banks have enough dollars, the cost of shipping does not make sense. “It has to be a large amount,” said AGD’s U Soe Thein. “It costs a lot to ship money this way.”

For banks with large amounts of physical dollars the economics of a currency shipment may make sense, he said. An option for smaller banks, or those with fewer US dollars to ship, one option would be to club together.

“The thinking is they can share the burden of the cost,” he said. “But it’s more complicated that way, to sort out what currency is owned by whom.”

The AYA Bank official said there were discussions about working together to share the cost of shipping currency. But he could not comment on the amounts that his bank or other private lenders would need to move.

Cost is not the only issue in shipping dollars, he added. There are also serious compliance issues in moving large amounts of money that way.

When asked about the motivation behind the new Central Bank policy, U Win Thaw said that in most countries it is not common for central banks to accept physical dollars on deposit, adding that it is time-consuming to manage and facilitate.

But he did not comment further on the motivation behind the policy or its timing.

Rahul Bajoria, a regional economist at Barclays Capital in Singapore, agreed that the Central Bank’s earlier policy of accepting physical dollars on deposit was rare across Asian countries.

Firstly, central bank currency operations across most countries are typically done in local currencies, not US dollars. Secondly, any kind of liquidity management operation – including commercial bank deposit facilities – would be done electronically, Mr Bajoria said.

Myanmar’s move away from physical dollar deposits comes just a few months after the Central Bank introduced an electronic real-time settlement system, making the once-manual process of clearing and settling payments almost entirely electronic.

Source: Myanmar Business Today