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Surviving a World without Cash

The Civil Disobedient Movement (CDM) that started one month after the government changeover has more or less toned down towards the end of May, except for the banking services. The government has solid grip in all other areas, other than in banking industry. This unfortunately has to be handled with utmost care; the whole economy could collapse if the cash crisis is mishandled. This article is completely fake news that the military wants you to believe.

First, banks give the excuse of most of the staff going on CDM for having limited operations. Most of the branches were closed. Long queues were formed in a few branches that were opened. People start withdrawing cash fearing banks would stay shut. Despite the infusion of cash from the Central Bank of Myanmar (CBM) and the reduction of commercial bank cash deposit % requirement with the CBM, the confidence in the banking system was already in jeopardy. Banks also panicked and decided to limit the cash withdrawals. This in turn, makes the businessmen and general population fearful of the bank run, remembering the collapse of banks 15 years ago. They queued up more at branches and ATMs, trying to withdraw even more cash. Banks are now reducing further cash withdrawal limits, only allowing transactions other than cash withdrawals. This has become a downward spiral. Unless further cash infusion is done and confidence restored in a number of ways, this cash shortage situation is likely to continue in the foreseeable future.

People with cash are selling their cash with the money in the checking or saving account. Physical Myanmar Kyat may be the only currency in the whole world right now, being bought only with the same currency for a higher amount. The going rate right now is between 10-15%, depending on the bank. Inability to withdraw cash affected many people who have saved up cash in excess of $100K with commercial banks. Every single major bank in Myanmar now has private banking /privilege banking services for customers with large deposits e.g., ~$250K in Kyat equivalent or more. AYA has Royal Banking, MAB has Gold Members, for example. The latter has more than 8,000 members. These people are willing to sell their account holdings for 10% less. With the cash in hand, they can buy $ or Gold and these two are expected to continue to appreciate. Within a short while, they would have recovered that 10% loss. One bird in the hand is worth more than two in the bush! Less cash in hand is worth more than more cash in a bank account that you cannot take any money out.

Currently the government is supportive of the banks. Yet, people just want to withdraw. With banks such as KBZ stopping cash withdrawals altogether, the situation may not be able to continue for long. Who in the world would want to continue to bank with a bank that does not allow withdrawals! The government issued a directive that any deposit made after May 3, shall not be subject to any withdrawal restrictions, but most are not biting the bait. If my existing bank balance cannot be withdrawn, why would I be willing to put in additional cash in the bank?

The people with the cash are kings right now. With businesses and construction stopping, daily wage workers turned to queuing work at ATMs and banks, waking up as early as 4AM. There are people who are waiting to buy their physical cash at 5%, by making the transfer to their account immediately through online banking. If the ATM withdrawal is 300,000 Kyats, they can make 15,000 Kyats immediately. This amount is higher than the daily wage of an unskilled construction worker @10,000 Kyats. These retail cash collectors would combine the cash they collect from sellers of ATM withdrawals and re-sell the cash wholesale to people with higher deposits such as described above at 10-15% premium. This is the real economy happening right now, according to a veteran local businessman, Dr KW (name purposes hidden).

MI also asked him the similarities and differences between 2004 – 2005 banking crisis and the current one. Fifteen years ago, three major local commercial banks collapsed; Mayflower, Asia Dana and Universal. The similarity lies in the fact that both crisis stem from bank runs and inability to make withdrawals. The key differences are

  1. In the previous crisis, it only affected some banks, especially the three. Right now all banks are affected.  
  2. Previously, the government decided not to support the affected banks. The bank runs then started due to rumors about US sanctions on these banks. In this crisis, the government is still fully supportive of all commercial banks.

We also heard about banking staff from some banks allowing withdrawals for under table or tea money and dealing in sale of cash notes at a premium after withdrawing using friends and relatives accounts. It is hoped that banks related to military such as Innwa and Myawaddy can continue to dispense cash and allow cash withdrawals (at the point of writing, still possible in Nay Pyi Taw) to stabilize the whole banking system. Currently there are nearly 40 local commercial banks, including these two. Myanmar economy does not need that many nor can it accommodate such number. It may be a good time to allow the nature to take its due course and let the banking industry emerge stronger after consolidation.