The plan for Myanmar's boldest economic reform yet was laid out by central bank deputy governor Maung Maung Win in documents seen by Reuters Tuesday that said preparations to unify the dual exchange rate should be made by the end of this month.

That would be followed over the next 12 months by a managed currency float of the kyat and the introduction of an interbank currency market, which would allow authorities to intervene and influence the rate.

From 2013/14 onwards, Myanmar would aim to "entirely eliminate" the "informal" currency market, the documents said.

Last March the former military junta made way for a nominally civilian government that embarked on a major reform drive, freeing hundreds of political prisoners, loosening media controls and engaging with Nobel Peace Prize laureate Aung San Suu Kyi, leader of Myanmar's pro-democracy movement.

Officially, one U.S. dollar buys a little over six Myanmar kyat. Unofficially, it's more like 800 kyat.

The kyat's unofficial rate, used in most transactions, has jumped from more than 1,000 per dollar in 2009 as foreign money has flowed into the timber, energy and gem sectors. That has hurt a swathe of Burmese, from farmers and manufacturers to traders and employees of foreign firms paid in dollars.

The central bank documents did not indicate what the free market rate might be.

The official rate is used for government revenue and for imports by some state-owned enterprises. As a result, state revenue is grossly underestimated and some critics say it is likely vast sums of that money have been kept off the books and quietly smuggled out of the country into offshore bank accounts held by cronies of the former junta.

They may have repatriated some of the funds to snap up state assets that were sold off during an extremely opaque privatization boom that took place just over a year before the army's transfer of power to the civilian government.

Currency reform is a delicate task whose prospect unsettles many ordinary Burmese. In 1987, the sudden cancellation of certain banknote denominations by late dictator General Ne Win wiped out many people's savings and helped trigger a pro-democracy uprising the following year that the military crushed by killing and wounding thousands.

Since 1977, the kyat has been pegged to the International Monetary Fund's (IMF) special drawing rights, with one dollar equaling 6.4 kyat.

"KEY FACTORS FOR ECONOMIC DEVELOPMENT"

U Myint, chief economic adviser to President Thein Sein, warned in a paper in June that the currency could destabilize Myanmar and urged the government to ask the IMF for help.

A team of IMF advisers came in November to look at reforming the currency and unifying the rates. Myanmar is one of only 17 countries that still have dual exchange rates and even the IMF has only three experts on how to unify them.

"Successful implementation of reforming the exchange rate system is one of the key factors for economic development," said the documents, part of a presentation made by the central bank on March 1.

It said the multiple exchange rates had led to "appreciation pressure and volatility."

There was therefore an "obligation to unify the exchange rates," with the aim of "adopting a managed-float exchange rate system with the goal of domestic price stability."

"The value of the kyat will be determined by the demand and supply of the market," it added.

All government institutions would have to use the prevailing market rate, which would bring transparency to the state budget and fiscal policies, it said, acknowledging this would be a shock.

Measures would be prepared to address "speculative activities and panic effects in the foreign exchange market."

Market information and surveillance systems would be introduced and other Asian central banks would help the authorities develop the capacity to run the new market, the central bank said.

The reforms are likely to heighten debate over Myanmar's economic potential.

As big as France and Britain combined, the resource-rich country sits strategically between India, China and Southeast Asia with ports on the Indian Ocean and Andaman Sea, all of which have made it a coveted energy-security asset for Beijing's western provinces.

Bordering five countries, Myanmar offers multiple avenues of Asian engagement as U.S. President Barack Obama shifts focus from the wars in Iraq and Afghanistan toward economic growth and security in the Asia-Pacific region.

But half a century of isolation has taken its toll on the former British colony, also known as Burma. The barriers to progress are formidable: U.S. and European sanctions, woeful infrastructure, weak investment laws, a crippled banking system and a shortage of skilled Burmese.

Some expect sanctions to begin to be lifted if by-elections on April 1, in which Suu Kyi will run for parliament, are free and fair. A November 2010 general election was widely criticized as a sham.

The central bank also called for harmonization between fiscal and monetary policies and better monitoring of the economy, along with improvements to the banking sector.

A "possible increase of FDI inflows and remittances will contribute to the national economic development," it said.

(Writing by Alan Raybould; Editing by Jason Szep & Kim Coghill)

• A Permanent Economic Emergency