The Indian government’s decision to remove 500 and 1000 rupee notes from circulation has frozen border trade with Myanmar, where traders are concerned that some of their rupee holdings could become worthless.
Traders in the town of Tamu and Nant Hpa Lon Market in Sagaing Region said cross-border business with India had stopped completely, following Indian Prime Minister Narendra Modi’s announcement on Nov 8 that 500 and 1000 rupee notes would no longer be legal tender, the Myanmar Times reported on Wednesday.
Indian’s demonetisation policy is designed to combat corruption and fake currency, but has caused uproar as the population attempts to exchange old 500 and 1000 notes into bank deposits or smaller denominations.
Across most of Myanmar, any business deals with India are typically denominated in US dollars and conducted through bank transfers. But in border towns like Tamu, sales and purchases are all conducted in rupees.
The demonetisation policy’s impact on Myanmar border trade is two-fold. Firstly, amid the confusion over how to exchange newly illegal rupees notes and limits on withdrawals from Indian ATMs, some Indian traders have yet to finish paying Myanmar exporters for goods.
Khin Maung Tin, secretary of the Tamu Border Traders Association, said the Indian announcement had stopped cross-border trade while transactions were still to be completed.
“There are still debts to be paid [to Myanmar traders],” he said. “We are waiting to see how much we have lost in rupee payments.”
The second issue is that Myanmar traders who have accumulated rupee holdings are now wondering how to exchange 500 and 1000 notes that are no longer legal tender.
“Myanmar people have been left with a lot of rupees. I’m not sure whether they’ll lose money or not,” said Khin Maung Tin. “We are waiting to see how much [of our rupee holdings] we will be able to exchange.”
He said that Tamu traders were holding around 210 million rupees (US$3 million). Rupee-based cross-border trade also takes place in the Rih area of Chin state, but the Rih Border Traders Association could not be reached for comment.
The Indian government is allowing their citizens to change up to 2000 rupees into new notes at Indian banks and other official institutions across India, providing the person has valid source of identity. For larger sums, the money must be deposited into an Indian bank.
Many Tamu residents say they have far more than 2000 rupees, but as they are not Indian citizens they have no means of changing the old notes.
Tamu trader Aye Kyaw said that individual traders on both sides of the border have cash holdings of more than 200,000 rupees.
The Tamu Border Traders Association has submitted a request to the local office of the Ministry of Commerce to help solve the issue and help restart trade, Khin Maung Tin said.
“We heard that the [Ministry of Commerce] head office [in Nay Pyi Taw] will solve the problem through diplomatic channels if they can,” he said.
Khin Maung Lwin, assistant secretary at the ministry, said there had been no case submitted to the head office on the matter yet.
“All this money [rupees] is not deposited in a bank in Myanmar,” he said. “So there will be some discussion and some difficulties. If they get paid in rupees, they are responsible for exchanging the money. I heard they are exchanging the rupees by linking with border merchants.”
Exchange the rupees inside Myanmar is an option. But Zaw Htay, chairman of Nan Phar Lone Market in Sagaing, said that although the Myanmar Central Bank’s official exchange rate showed 100 rupees was equal to 1,905 kyat, the local exchange rate for 100 rupees had dropped to between 1,200 and 1,500 kyat.
Khin Maung Tin also said his association had contacted the Indian consulate in Mandalay.
“Our traders are facing losses so we asked them how they can help, but they haven’t said anything yet,” he said.
The Indian Consulate in Mandalay and the Indian embassy were unable to respond by press time.
Between April and October this year, trading volumes at the Tamu commercial trading station are in excess of $31 million, according to a spokesperson for the Tamu office of the Commerce Ministry, who asked to remain anonymous. Areca nut is the mostly common exported good, while imports from India are dominated by garden peas, wheat power, lentils, threat and motorbikes, he said.