New 5,000 Kyat Note Sparks Inflation Fears

The Burmese regime is to issue a new 5,000 kyat currency note on October 1, raising fears of an increase in consumer prices as more paper money goes into circulation.

Following an official announcement on Thursday evening of the new issue, the price of gold increased on Friday and the value of the kyat fell on currency markets.

Sean Turnell, an economist at Australia's Macquarie University, who produces a regular Burma Economic Watch report, said: "There will be a scramble into hard currencies, gold, and any other 'store of value' medium that cannot be touched by the regime. We should expect a short sharp decline in the value of the kyat as a consequence."

The price of gold rose on Friday from 590,000 kyat ($530) for one tical of 24-carat of the precious metal to 600,000 kyat ($538) per tical. One tical is equal to 0.525 troy ounces.

The black market value of the kyat fell from 1,060 to 1,140 kyat to the US dollar.

Uncertainty over the implications of the introduction of a 5,000 kyat note caused most currency and gold traders to suspend business until Monday, a Rangoon trader told The Irrawaddy.

Money changers at the Thai-Burmese border also suspended transactions in kyat.

The new note—red in color and with an elephant as motif—will join the 1,000, 500, 200 and 50 kyat notes now in circulation. They will remain legal tender, the official media reports said.

Turnell warned that the issue of the new note could lead to a rise in inflation.

"A big outstanding issue is whether the issue of these notes is in addition to the existing stock of notes or not," he said. "If there is a net addition to the money stock because of this, then the issue of the new 5,000 kyat note will add to Burma's inflation problem. It will, after all, simply be yet more 'money printing.'"

Traditionally, the Burmese junta has never announced how much money is in circulation.

The International Monetary Fund, however, estimates it to be 2,651.1 billion kyat at the official exchange rate. Calculated at Friday’s black market exchange rate, however, only about $2.4 billion is in circulation.