Unlike neighboring Vietnam, Cambodia has so far kept away from forcing businesses and other people to use the riel for concern of destabilizing an economy less than 0.2 percent the scale of China’s. Its standing as Asia’s “most dollarized” country leaves it at risk of changes in U.S. monetary policy and erodes export competitiveness because the dollar strengthens, according to the IMF.
More Expensive:
Policy makers are currently making an attempt to vary that. They’re counting on an economy that’s forecast to grow quicker than China’s to win trust in the local currency. Government salaries, taxes and utilities are paid in riel and the 3 stocks listed on the Cambodia Securities Exchange trade in it. The central bank has conjointly improved the standard of currency notes to encourage their use.
The dollar effectively replaced the riel once the Khmer Rouge abolished money and blew up the central bank during a communist revolution that killed around 1.7 million people from 1975 to 1979, exploit the nation without a monetary system. The International Monetary Fund attributes the riel’s low recognition to that practice, remarking gold and even rice were most popular as payment before the currency was restored in 1980.
Today, most restaurants, hotels and outlets in Phnom Penh and traveler areas like Siem Reap quote costs in dollars. Even loans are offered in the U.S. currency by the private banks like ACLEDA Bank Plc, and ANZ Royal Bank.
Dollarization Cost :
The extent of dollarization forces the National Bank of Cambodia (NBC) to give its monetary policy to the U.S., consistent with the International Monetary Fund, curbing the central bank’s ability to respond to external shocks.
Japan’s yen and the riel have bound the main in the past year among 18 Asian currencies tracked by Bloomberg, with most of their regional peer weakening. Vietnam’s dong depreciated by 4.2 % in the period while the riel advanced 1.3 percent. These two countries export clothes to Europe and the U.S.
Still, Cambodia economy grew 7 % in 2015 and its growth has averaged 7.5 % in the past ten years, central bank data show. Exports raised 15 % last year and 14 % in 2014, in the main driven by shipments of clothing.
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Foreign currency, containing mainly dollars, accounted for 83 % of cash and bank deposits in Cambodia at the end of last year, up from 56.3 % in 1995, according to the central bank. In Vietnam, wherever valuation merchandise and services in dollar is prohibited, authorities estimate the dollar’s use has decreased to a record low of 10 %, from 16 % at the end of 2011.
“We don’t need to use administrative measure that might fright investors,” said Chea Serey, director general of central banking at the National Bank of Cambodia, which is functioning with the government to draft a plan to cut back depending on the dollar. “We’re trying to make confidence in people’s minds concerning their own currency.”
Behavioral Change:
“Behavioral change” is essential for the riel to achieve wider acceptance, and while the central bank hasn’t set a deadline to attain this goal, it could happen within the next decade roughly, Serey said. The NBC plans to spread local foreign-exchange and money market by attracting additional participants and providing new product and services, she said.
The authorities are being realistic, as proof elsewhere shows the use of power “may be counter-productive,” said Stephen Higgins, managing partner at Mekong Strategic Partners in Phnom Penh, and the former Chief Executive of ANZ Royal Bank.
Growth slowed considerably and inflation soared. The extent of the challenge remains glaring. In Siem Reap, home to the Angkor Wat temple and the centuries-old remnants of the Khmer Empire, children sell souvenirs for a dollar.