The new 100,000 riel banknote depicting the late King Father Norodom Sihanouk is not just a pretty historical token. It will also help inject much needed cash into the economy, according to the National Bank of Cambodia.
Although take-up will occur as older banknotes of other denominations deteriorate, the introduction of the new denomination will provide additional liquidity that is demanded by Cambodia’s rapid growth, NBC director-general Nguon Sokha said.
“It is an increase of liquidity based on the demand of the currency, for the increase in economic transactions,” Sokha said. “Absorption will be done gradually and injection will be done gradually, it is not simultaneous,” she said, adding that additional liquidity is injected over and above that which is absorbed.
Kang Chandararot, president of the Cambodian Institute for Development Study, is concerned that now is not the right time for increasing the liquidity volume in Cambodia. A strengthening dollar, “seasonal riel demand”, a lack of long-term growth and inflationary pressures from the Kingdom’s neighbours are all reasons increasing liquidity was “dangerous”, he said.
“So far the situation is not convenient to introduce new volume of liquidity into circulation,” he said.
“We need to be strict in our monetary policy, otherwise we just import inflation from those [neighbouring countries: China, Vietnam and Thailand] and it will abolish all our efforts in the past.”
Sokha did not anticipate any immediate inflationary or valuation impact and said the long-term plan was to encourage broader use of the local currency, moving away from the US dollar.
“Our cash strategy is to increase the use, not strengthen the value, but increase the use; the value needs to be maintained so that means there is stability in the exchange rate in order to maintain and promote the public confidence in the local currency” she said.
“We understand our situation and we give a lot of careful attention before we inject the money into the local economy, we aware that we don’t want to inflate the economy through this.”
Grant Knuckey, chief executive of ANZ Royal Bank also did not anticipate any great impact as the issuance he said was largely “symbolic”.
“In the case of Cambodia, as a physical cash society there can be more of an impact from introducing new notes, but even then it is marginal. I wouldn't expect any inflationary impacts, and indeed the NBC has control over notes and can remove other case from the system if need be,” he said.
Sokha did not have figures of the total value of the new denomination to be injected at hand.