W ITH counterfeiters, currency speculators and crisp redesigned bills for a new

era of capitalism all in the mix, the state of the Cambodian currency has become

a hot topic even on the cocktail circuit these days. Just about everyone, it

seems, has heard one explanation or another why the riel has been bouncing like

a yo-yo against the dollar over the past three weeks.

The unwanted

appreciation in the value of the riel, up nearly 20 percent against the US

dollar at one point on April 7 before the rate began to drop back down toward

previous levels, has led government finance and National Bank officials to take

a variety of actions to keep Cambodia's delicate monetary system on

track.

As of early this week, the National Bank's moves seemed to be

working as intended.

May Tola, the deputy director of exchange management

department for the National Bank, said the riel settled at a market exchange

rate on Tuesday afternoon of 2,262 to the dollar, which would mean it was up

about ten percent from where it was before the volatility began. The riel had

remained stable around 2,500 for most of 1994.

Also on Tuesday, the first

day of official business after the Khmer New Year holiday weekend, the National

Bank resumed its dollar auction - which were cancelled at various times during

the past two weeks.

It said there was reason to continue through the week

with the normal daily auctions, which were established in September, 1993. The

auctions are integral to Cambodia's banking system because they enable the

National Bank to absorb riel back into the banking system, by exchanging the

government's donor dollars for the riels the government needs to operate. At the

auctions, dollars are generally bought by importers who want dollars to conduct

business or by currency exchangers.

Tola said the usual volume of

$700,000 dollars was sold at the auction Tuesday and that $700,000 would also be

sold Wednesday. The resumption of the dollar auction is significant because if

the National Bank did not think that the appreciation of the riel was leveling

off, it would not make a move to lower the demand for dollars by putting more

into circulation.

"We do have people who wonder why we're selling US

dollars when the (riel) rate is appreciating. We want to smooth the rate, not

turn the rate the way it should go," Tola said

But while the exchange

rate looked during the week of April 17 to be at least headed back toward

stability, the sudden appreciation of the riel that became apparent on April 7

had sent the National Bank and government into mild convulsions over what to do.

That led to widespread theorizing as to what might be causing the

imbalance.

One widely held belief is that currency speculators, in

particular an unidentified group of Chinese businessman who are said to have

been setting the value of the riel "in a hotel room" for the past several years,

may have bought up great volumes of riels shortly after the government started

putting its new denominations of riel into circulation on March 25.

"The

Chinese traders have been the exchange market for years - since the late '80s

basically," according to one financial source who tracks economic issues in

Phnom Penh.

One knowledgeable source said that it was possible that

speculators affected the market. "This is a thin market and whatever they buy

with, dollars or gold, it could have that effect."

The Minister of

Finance, Keat Chhon, gave some support to that theory at a press conference

April 3 when he said there was some speculation going on in the new

currency.

He said he didn't know who the speculators were, but there

might be several people who had pooled their money. "Our concern is that after

the New Year, the riel is goiing to depreciate," he said.

Tola said that

if the riel depreciated back to 2,500, nothing was lost. The volatility has been

too brief to cause inflation. People might have found food or fuel prices to be

slightly lower.

Another popular theory was that counterfeiters had a lot

to do with the rising riel because people now believed, in the wake of two

seizures of counterfeit US dollars, that using dollars wasn't worth the risk. At

the same time, as fears about counterfeiting were increasing, the newly printed

large denomination riels had just been released, for the first time making the

riel a viabile option to dollars.

A third theory was that Cambodians

simply liked the new riels, so the reils became more valuable. In fact, the

psychological effect of the newly issued bills was so favorable, they were

hanging on to them in numbers great enough to reduce the overall liquidity of

the riel in the marketplace, thereby raising its value. The crisp new currency

carries a picture and the signature of the King, which is more pleasing than the

old currency with its picture of a farm cooperative. The new currency is printed

in France, while the old currency was printed in Russia. All are signs of a new

era.

Still others argued that the riel would be appreciating because the

US dollar was down in international markets, having fallen 13 percent against

the Japanese Yen and German Mark since the beginning of the year.

Bits of

each scenario probably contributed to the volatility of the riel. Tola said

Cambodia's currency situation operated somewhat independently of the

international markets for several reasons. For one, Cambodia's is a society

which deals in dollars. For another, people until recently had not had faith in

either the local currency or the local banks, thus leading to the use of the

dollar in the first place.

The appreciation of the riel with the

introduction of the new currency was hardly what the National Bank officials

expected. Inflation was their big fear. Last year, when the idea of a new

currency was floated by former finance minister Sam Rainsy the exchange rate

shot up to about 2,800. Last October when the announcement that the new currency

would indeed be issued, the rate rose again.

"So there was a lot of

concern," said Tola. However, he said TV announcements and other publicity about

the new currency evidently alleviated people's potential fears, and the new

bills were adopted with greater enthusiasm than predicted.

The swift

adoption of the new currency could accelerate the "de-dollarization" of

Cambodia. The long-term monetary plan is to move Cambodia away from its dual use

of dollars and riels, and eventually make the riel the exclusive currency.