The recent rise in the value of the Burmese kyat against the US dollar is giving not only currency traders cause for thought. Financial experts and market observers are also looking into the likely reason for the newly won strength of the kyat, which has appreciated from around 1,200 kyat to the dollar in mid-November to the current rate of 990 kyat.

Since 2005, when a dollar cost just 880 kyat, the Burmese currency steadily declined in value, hitting a three-year low of 1,190 kyat to the dollar in January this year. Since then, however, the downwards trend has reversed, and today the currency trades on the black market at around 995 kyat to the dollar.

Traditionally, one of the most important factors that influence the exchange rate of the kyat is the constant change in restrictions on imports and exports. When the restrictions are tight on imports, there is less demand for US dollars in the market, and the value of the kyat rises. When the import restrictions are relaxed, demand for the US dollar rises and the value of the kyat falls. But this factor has not influenced the current strength of the kyat, currency dealers say. 

Although Burma has no official currency market, the US dollar is always subject to intense speculation. Some big-time speculators purchase tens of thousands of US dollars in order to push up the value of the greenback, tricking other investors into buying large amounts of the US currency. In the volatile market conditions that follow, the speculators resell their dollars at a handsome profit.

In Burma, the US dollar holds sway in the street markets, although the Thai baht and Chinese yuan are also often accepted, particularly in border trade,  while such convertible currencies as the Euro, the Japanese yen and Australian dollar are shunned.

Large amounts of dollars change hands daily at Rangoon's Bogyoke Aung San market, which has several currency exchanges, none of them authorized.

The market's currency dealers, who set the black market rate for the US dollar, agree that the worldwide depreciation in the value of the greenback could be a reason for the kyat's sudden strength.

Dealers say a rise in the number of tourists visiting Burma is also contributing to the rise in the value of the kyat. An official with Myanmar [Burma] Travels and Tours, run by Burma's Ministry of Hotels and Tourism, has announced that tourist numbers are up by at least 30 percent on last year. The 260,000-plus tourists who visited the country during the past year contributed US $165 million to state coffers.

Another factor contributing to the strength of the kyat, according to currency dealers, is the contribution in earnings from the trade in opium and amphetamines at the Sino-Burmese border.

The rise in the kyat coincided with the start of the cold season, when most opium farmers harvest their crops.  A currency dealer in Rangoon said: “The rate this time is not determined by the circumstances in Rangoon markets. The exchange rate of the Chinese currency versus the kyat at the border has affected Rangoon.”

This theory finds support in a report by the UN Office on Drugs and Crime (UNODC). Releasing the report, “2009 Patterns and Trends of Amphetamine-Type Stimulants and Other Drugs in East and South-East Asia,”  UNODC representative Gary Lewis told the reporters in Bangkok that Burma's armed ethnic groups—particularly in the Shan, Wa and Kokang areas—are increasingly cashing in their stocks of illegal drugs in expectation of a junta crackdown. The regime has in recent months stepped up its pressure on the ethnic groups ahead of the elections planned for 2010.

If this theory stands, the main reasons for the kyat's appreciation seem to be coming from events outside Naypyidaw’s control and are no indicator of the strength of the Burmese economy.

But who knows? Like the US, Britain or any of the countries of the G8 that printed money to get out of recession, Burma's ruling generals, who aren't known for their skill in managing the country's economy, might be tempted to create more kyat banknotes. Currency chaos could be the result.