Dear Editor,

The official long-term objective of the Cambodian government is to move toward “de-dollarisation”, which shall be viewed as a very long-term goal, as pointed out by Mr Jayant Menon, ADB resident chief economist.

However, at an operational level, the NBC would prefer to make use of a more pragmatic terminology in the form of a shorter-term target by promoting the use of the domestic currency. There have been very long-lasting debates on costs and advantages related to dollarisation of economies.

As a matter of fact, such debates are seldom conclusive with a clear-cut outcome where the advantages would significantly overweigh the costs, at least as a general rule.

The NBC considers very carefully all measures with retroactive or proactive effects that could flaw or negatively influence investors’ decision making or impact the confidence into the overall confidence, vis-à-vis the Kingdom.

Nevertheless, in setting forth rules and conditions applying to instruments and transactions that still don’t exist yet, the Monetary Authority would also stress that any such decisions related to the currency of issue and listing of stock might have irreversible consequences and jeopardise the chances to achieve the government’s long-term goals by actually increasing dollarisation of the Cambodian economy.

Notably, with regard to utilities companies, it is highly likely that issuance in US dollars would be favoured to attract foreign investors, whereas US dollar stock issues would actually generate Asset and Liability Management (ALM) constraints pushing to bill in US dollars, whereas those companies draw their incomes, locally, in Khmer riels, which – by the way – is legal tender by law in the Kingdom. This might also have severe impacts on Cambodian citizens, such as civil servants, who draw their incomes in Khmer riels.

With regard to long-term growth, it is the NBC’s opinion that it also requires long-term commitment from the foreign investors. In this perspective, a foreign investor would logically analyse and assess the following risks prior to making a decision to invest mid-term/long-term in a foreign country:

? Country risk: The assets are located in Cambodia, with country specific features (tax environment, social environment, economic perspectives ...

risk for unrest, political instability).

? Transfer risk: Even though the securities were to be issued in USD, if a foreign government were to decide to put a ban on capital exports or to implement capital controls, the profits or proceeds drawn locally would remain nontransferable.

? Ultimately, FX-currency and “convertibility” risk, which also points at the need for an effective FX currency market (in terms of liquidity and transaction costs) and the absence of possible restrictions to convertibility.

The question of the currency of issue would, logically, and according to this decision-making process, only come in third position.

The NBC is of the opinion that focusing exclusively on the currency of issue would lead to please market forces that would mainly consider the very short-term profit perspectives offered by the exchange market rather than committing themselves through a long-term investment decision.

In turn, such market forces would introduce significant volatility into trading, could lead to bubble effects and, ultimately, prove very detrimental for the stock exchange market itself and for the listed companies as well.

Some countries in the region experienced this over the past decades in the form of highly-speculative trends; in a context characterised by scarcity and little diversification of available tradable financial assets, speculative behaviours rapidly result in “bubbles”, which can have major disruptive impacts on the economy.

Such behaviours actually lead to disconnect positions’ taking and asset prices from some fundamentals that should be otherwise closely monitored if the investors’ motivations were not exclusively oriented towards very short-term profit-taking.

Tal Nay Im

Director General National Bank of Cambodia

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