Cash withdrawal fees via mobile payment agents have surged across 14 townships in Arakan State controlled by the Arakan Army (AA), rising to 9,000 MMK ($2.04 USD) for every 100,000 MMK ($22.72 USD) withdrawn through KBZPay—nearly double the 5,000 MMK ($1.13 USD) rate charged in July.
With formal banking operations completely suspended across AA-administered territories—such as Mrauk-U, which was captured by resistance forces in February 2024—residents relying on overseas remittances and local trade are forced to pay steep premiums to convert digital wallet balances into physical banknotes.
Drivers of the physical cash shortage
Local KBZPay agents and merchants attribute the acute liquidity crisis and soaring service fees to a combination of seasonal logistics disruptions and regional movement restrictions:
- Monsoon Road Conditions: Cross-border trade routes connecting Arakan State to India’s Mizoram State have become largely impassable due to monsoon rains, delaying merchants who traditionally transport hard currency back into the region.
- Emergency Service Restrictions: The AA’s “National Defence Emergency Provision”—enacted on March 18, 2025—prohibits men aged 18–45 and women aged 18–25 eligible for service from leaving the state, further restricting the movement of informal financial couriers and merchants entering from India.
- Agent Cash Surcharges: Because KBZPay digital transfers cannot be spent directly for basic goods without local banking infrastructure, agents buy physical cash from merchants at high percentage rates and pass those operational costs directly onto consumers.
Parallel banking network and currency policy
To address the collapse of the commercial banking system, the United League of Arakan (ULA)—the political wing of the AA—is preparing to establish a new state-owned banking institution across three designated townships.
Merchants indicate that the planned state bank may officially adopt the Indian Rupee (INR) alongside the Myanmar Kyat (MMK) for commercial transactions, leveraging cross-border trade corridors connected via Paletwa Township—a key transit hub along the India-Myanmar border captured by the AA in January 2024.
Financial divide: Resistance vs. Regime Areas
A stark financial divide persists between AA-administered zones and the few remaining military-held coastal pockets in Arakan State:
- Regime-Controlled Zones: The military’s state-run Myanma Economic Bank (MEB) continues limited operations in only three major centers: the state capital Sittwe, the deep-sea port hub of Kyaukphyu, and Manaung Island.
- Frontline Offensives: The AA launched a statewide offensive in November 2023, expanding operations into neighboring Ayeyarwady, Bago, and Magway regions throughout 2025. Armed clashes and siege operations targeting regime garrisons in Sittwe and Kyaukphyu remain ongoing, keeping state-run banking services completely cut off from the broader population.
