Logo of Phnom Penh Post newspaper Phnom Penh Post - Dollar use hurting national economy

Dollar use hurting national economy

A vendor places a stack of Cambodian Riel in a counter at a currency exchange store yesterday in Phnom Penh.
A vendor places a stack of Cambodian Riel in a counter at a currency exchange store yesterday in Phnom Penh. Heng Chivoan

Dollar use hurting national economy

Dollarisation in Cambodia’s economy remains very high, leading to increased local costs and reducing the appeal of the Kingdom’s exports, Chea Serey, director general of the National Bank of Cambodia (NBC), said at a business conference in Phnom Penh yesterday.

The majority of transactions in Cambodia, between 82 to 84 percent of them, are still done in dollars, according to Serey. She explained the use of dollars made transacting in the local currency more expensive, effectively penalising those who used riel.

“It makes transaction costs more costly for the users, but it also makes transaction costs for merchants higher because you have to maintain two different accounting sets – one for local currency and one for foreign currency,” she said.

The high level of dollarisation continues to have a negative impact on the country’s major economic sectors, particularly exports and tourism, she said. As the dollar grows in value, exporting goods from Cambodia becomes more expensive relative to the exports of other export-driven economies.

“Currently what is happening is that the dollar is very high and a lot of countries are betting on this because when the dollar gets higher the local currency is cheaper,” she explained. “Therefore, they can bring more tourists and they can export more.”

In the case of Cambodia, however, that does not happen because the widespread use of dollars means that “when the dollar goes higher that means products produced here in Cambodia also become more expensive”.

In addition, dollarisation severely limited the reach of the NBC’s fiscal policy, Serey said, leaving the country with few tools to mitigate exposure to external economic risks. She added that the NBC provides liquidity in local currency to commercial banks, which if utilised could significantly reduce the cost of lending.

“If everyone [banks] lends in the local currency, they can actually come and borrow liquidity from us at 3 percent per annum and, even with operations costs and legal costs factored in, you can probably lend at about 6 percent and still make money,” she said. “Local currency lending at the moment stands at about 18 percent, so it is quite high.”

MOST VIEWED

  • Government hits back at threats to pull EBA, suspend UN seat

    The spokesman for the ruling Cambodian People’s Party (CPP) has said the government is in no way concerned after the European Parliament gave it three months to reverse what it called the “systematic repression of the political opposition”. Ignoring the ultimatum could mean facing

  • Chinese influx pushing locals, Westerners out of Preah Sihanouk

    Some within the Kingdom’s tourism industry have speculated that the recent influx of Chinese visitors may hinder domestic tourism as the price of accommodations in the coastal city of Sihanoukville continues to rise. Preah Sihanouk province, which has become a hotbed for Chinese investment

  • Sar Kheng: Sokha requested security

    Interior Minister Sar Kheng on Sunday revealed the story behind the transfer of former opposition party leader Kem Sokha from Trapaing Phlong prison in Tbong Khmum province to his house in the capital. Speaking at the ruling Cambodian People’s Party (CPP) headquarters in Prey

  • ‘Dire consequences’ from sanctions, warns AmCham

    American businesspeople in Cambodia have warned that any sanction against the Kingdom would have “dire consequences” that could push Cambodia even further into the arms of China. In a letter to US senators and representatives dated Monday, the American Chamber of Commerce Cambodia (AmCham) said