Pongpen Ruengvirayudh: Managing currency stability Speech by Ms Pongpen Ruengvirayudh, Deputy Governor for Monetary Stability of the Bank of Thailand, at the SCB Collaboration with Myanmar Banks Dinner Talk, Yangon, 13 August 2015. *  *  *  Good evening, Excellencies, Governor of the Central Bank of Myanmar, Distinguished guests, Ladies and Gentlemen, I would like to thank the Siam Commercial Bank for inviting me to give a keynote speech on this occasion. Myanmar and Thailand have a long-standing cultural and economic relationship, particularly in trade and investment. This auspicious event marks yet another crucial step forward in promoting Myanmar-Thailand friendship, especially through financial and banking system. It is my hope that our two nations will continue to mutually benefit from their strong economic bind for many generations to come. Living in a more volatile and interconnected world Ladies and Gentlemen, One of the most important trends over the past decades is the rapid integration of international finance. From the perspective of our ASEAN economies, we have also gone through both regional and global interconnectedness. This is especially apparent for Myanmar, whose pace of integration is among the fastest, with ongoing liberalization on many fronts. Myanmar is thus becoming one of the attractive destinations for foreign investments. This configuration of financial integration is a double-edged sword. On the one hand, it helps distribute and diversify risk, raising economic efficiency and strengthening system stability.

This would lead to more bargaining power, and hence less  BIS central bankers’ speeches  3  sensitive to exchange rate fluctuations. Stronger domestic consumer base would also help lessen the dependence on external demand. All reforms I mentioned require concerted efforts from all public and private stakeholders. Policymakers should provide economic environment and infrastructure conducive to reforms. Particularly, financial literacy and risk management awareness should be fostered at all levels and sectors. Financial institutions also play a crucial role in developing financial products to facilitate transactions and risk managements. Businesses should upgrade productivity to enhance industry’s resilience to shocks. Advanced preparations will surely pay off. Lessons learned, challenges ahead, and policy implications Ladies and Gentlemen, As we are approaching the end of my talk, let me now share some final thoughts on lessons learned and challenges ahead. First, for countries that want to maintain autonomy on interest rate policy, exchange rate flexibility is a pre-requisite to living with capital flows. Nevertheless, extreme exchange rate fluctuations may cause misalignments. A trade-off between flexibility and stability thus requires policymakers to identify the exchange rate framework suitable for the economy. This can be a daunting task in practice, as the target is often country-specific and subject to dynamic economic developments. Keep in mind that monetary policy can do little to influence real exchange rates in the long term. Attempts to give the exchange rate more weight in monetary policy deliberations will also reduce the autonomy in controlling interest rate, leading to more interest rate volatility.