Rangoon — The value of the Burmese national currency, kyat, has suddenly appreciated as millions of US dollars flow into the local market in earnings from the opium and amphetamine trade at the Sino-Burmese border.

That’s the opinion of several sources in the Rangoon business community who cite the influx of dollars in the black market as the main reason for the rise of the Burmese currency.

At the start of the cold season, most opium farmers harvest their crops and the trade in drugs habitually flourishes at the Burmese border, sources close to border trade said. The illicit trade creates a large influx of US dollars into the Burmese economy and affects the exchange rate.

“The present exchange rate is 990 kyat to the US dollar,” a Rangoon-based money dealer said. “But this rate is not determined by the circumstances in Rangoon markets. The exchange rate of the Chinese currency versus kyat at the border has affected Rangoon.”

At the end of September, when the Burmese government announced it was to introduce 5,000 kyat notes into circulation, the US dollar was trading for 1,200 kyat on the black market and many traders bought US dollars.

According to a Mandalay-based currency market analyst: “There are many people who bought US dollars in October at the time when the 5,000 kyat notes were introduced. But US dollars did not run out even though demand increased. According to the nature of the currency market here, the Burmese kyat must start to appreciate when the supply of US dollars enhances.”

A Rangoon-based researcher on economy also estimated the rise of the kyat could be due to the influx of foreign cash into local markets from the opium and amphetamine trade at the border.

“Laymen could think the US dollar is depreciating worldwide and that could be the reason the US dollar is depreciating in the Rangoon market,” the researcher said. “But we have few businesses linked to the world economy. I think this assumption is wrong. It is more possible that the kyat is rising because of the money coming in from drugs sales.”

As the kyat rises, trade becomes slow because Burmese commodities are more expensive and local merchants confirm that export earnings are low in account transfer exchange rates.

A currency broker in Rangoon said, “As the trade in imports and exports is slow, the trade in foreign currency market is idle.”

Foreign Exchange Currency (FEC) notes—issued as a medium of exchange in Burma by the military junta—tell a different story, sources say, with more supply than demand in the market. A US dollar’s worth of FEC is now selling at 985 kyat in the market.

A local goldsmith close to U Kyaw Myint, the vice-chairman of Myanmar Goldsmiths Association, said the price of gold in local markets has decreased despite the rise of gold prices globally. He said he believes the cause could be an influx of US dollars and the rising kyat.

There could be some other reasons for the recent appreciation of the kyat. Some businessmen in Rangoon are speculating that the rise of the kyat may be due to political factors, such as the recent developments in US-Burma relations and a perceived breakthrough in Burma’s political deadlock. They also cite the positive gestures by pro-democracy leader Aung San Suu Kyi as contributing to Burma’s economic environment.

Factoring in billions of dollars in income from the sale of natural gas and other resources could also contribute to the appreciation of the Burmese currency, some economists said.