These excess kyats could then be “mopped up,” however, by sales of kyat-denominated treasury bonds, enhancing in turn the role of such instruments in financing budget deficits as and when they emerge. Of course, along the way Burma also accumulates foreign reserves (useful as a cushion against a volatile external sector, and necessary perhaps to eventually clear the country’s foreign debt arrears).
Moving to a managed float for Burma’s currency does not constitute anything like a magic bullet for its economic ills. These require yet more profound change, but especially in the transparency required in the spending and revenues of government. It is, however, a step in the right direction.
Sean Turnell is an economist at Australia's Macquarie University and editor of Burma Economic Watch.