THE decision to use riels on the forthcoming stock exchange may alienate some foreign investors, at least at the start, but in the longer term opting against dollar listings was the right decision.
If Cambodia is to dedollarise an economy in which 90 percent of money supply is in foreign currency then running the stock exchange in riels from the outset means avoiding a painful process of converting from the greenback to local currency listings later.
In the longer term, the country has to start moving away from the greenback if the National Bank of Cambodia is to seize full monetary control.
The creation of a major institution such as the stock exchange operating in the United States currency would have had knock-on effects within the economy creating further dollar dependency. Were listings in dollars, then by logical extension debt issuance would have been also, meaning the main options for raising capital in Cambodia will have been in the greenback. Dollar listings would have attracted more dollars into the economy.
But in the short term, when the stock exchange remains an unknown quantity and confidence is vital, will riel listings scare off foreign investors?
The assertion this month by NBC Assistant Governor Sum Sannisith in local media that there is no dollar bias in the private sector seems partly misleading. While many local investors no doubt support riel listings, a number of foreign investors and analysts have both privately – and in some cases publicly – warned of the potential negative effect local currency listings could have on appetite for Cambodian stocks.
The riel has in recent years mostly remained stuck in a slow, steady decline in value against the dollar and is an unknown quantity on international currency markets. This creates a high level of risk for foreign investors.
No doubt the SECC will help alleviate some of this risk at the outset by allowing dollar settlements by negotiation for the first three years. But this solution raises as many questions as it answers. What exchange rate will determine settlements and stock values, and therefore to what extent will currency risk associated with the riel be removed as a result of this short-term measure?
The SECC said it had been in regular consultation with international financial institutions, academics, the private sector and the public in making its decision so presumably there is substantial support for riel listings. The question is, how much?
If the government has truly accounted for riel sentiment then its currency gamble should pay off representing a significant step towards dedollarisation. Anything less and Cambodia’s stock exchange could face a difficult debut.