Reference no: EM131942972

Exchange Rate in Myanmar. In recent years, the Kyat (the currency of Myanmar) has depreciated relative to the US dollar. Back in January 2014 it was trading at about 1,000 Kyat per US dollar. Today is trading at about 1,300 Kyat per US dollar. For some, this is a sign of a weakening economy and a source of concern. In reaction to these concerns, a foreign advisor to the Myanmar government has told people not to worry. One of his arguments is that “Properly viewed in real (that is, inflation adjusted terms) the Kyat is still way, way above historical lows.” a) What does he mean when he says that adjusted for inflation the exchange rate is not low but high relative to historical standards? Does it make sense for Myanmar to have a currency going down but that when adjusted for inflation it looks higher than previous years? b) The central bank of Myanmar has a system of “managed floating”. They let the currency float but they also intervene often in order to manage the value of the exchange rate. When the Kyat was going down over the last years there were some calls for the government to intervene more often. Unfortunately, the volume of foreign reserves by the Central Bank is too low. How can the central bank increase the volume of its foreign reserves? c) Is there a way other than using foreign reserves to defend the value of your currency? Could it have worked in this case?