Sept 25, 2009 (DVB), Reports that Burma is soon to introduce its largest banknote has been met with concern by economists who fear it will increase inflation in an already fragile economy.
The 5,000 kyat note is due to circulate from 1 October, the state-run New Light of Myanmar newspaper said today. Official exchange rates in Burma would make that equivalent to around $US850, although blackmarket rates are 1,000 kyat to the dollar.
Burmese economist Sein Htay said that inflation in the country was "already very high" due to the government printing excess money for development projects.
The bulding of the new capital in Naypyidaw and various national security projects, he said, were the principal reasons for inflation.
"If you need to buy a car or a house nowadays, you have to carry the money in huge bags to pay the price," he said.
"[The government] is printing banknotes with a larger value so we don't have to carry as many notes as before."
Mass inflation was one of the key triggers behind the September 2007 monk-led uprising, after the government nearly doubled fuel prices over a short period, while it was currency devaluation that sparked the 1988 uprising.
Burma's first military ruler, Ne Win, famously scrapped all currency notes not divisible by nine, his favoured astrological number, a move that had a significant impact n the health of the economy.
Banks have now lost the trust of the people, Sein Htay said, given that interest is now "showing minus" and people are not investing.
"The basic production cost must be reduced such as lowering price of fuel, raw materials and the labour," he said. This would help the banks to regain trust.
"Burma needs a very balanced kind of plan to solve the problem," he said. "This started because of mismanagement of the country's economy and in order to solve this, we have to go back and fix it from the beginning."
Reporting by Khin Hnin Htet