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Improved economic conditions help riel use

Improved economic conditions help riel use

The use of Cambodian riel increased last year, suggesting increased confidence in the use of the local currency, while the riel’s real exchange rate compared with the dollar remained stable, according to a National Bank of Cambodia report.

While the central bank’s Supervision Annual Report 2014 did not provide exact figures for riel use in the country, it stated that demand for the local currency had risen significantly last year, buoyed by increased tax collection and growth in the economy.

“Increasing use of riel as currency is clearly reflecting increased confidence of [people] with the riel,” the report said.

The report also reveals that the central bank bought US dollars from the market 143 times last year, totalling $802.7 million, in order to maintain stability of the riel. This buyback infused 3,210 billion riel ($790.9 million) into the market, twice the amount of 2013.

While the riel was stable against the US dollar, the report shows that the real exchange rate of the Cambodian riel dropped 6.9 per cent against the Thai baht last year, 4.7 per cent against the Chinese RMB, and 3.9 percent compared to the euro, impacting the country’s export competitiveness.

Mey Kalyan, senior advisor to Supreme National Economic Council, said that the increased use of riel was encouraging, but the depreciation against the euro last year caused a decrease in exports to the EU, one of Cambodia’s biggest export destination.

“I am a little bit worried as the US dollar is strong and we [the riel] are linked closely with the US dollar. So, the price of our products increased compared to Thailand and Vietnam, lowering our competitive advantage against these exporters,” Kalyan said.

He added that, according to estimates, Cambodia’s economy was about 84 per cent dollarised in 2014, which was less than preceding years, suggesting the increased use of the riel is an emerging trend.

In Channy, president and group CEO of Acleda Bank, said that increased use of riel in the economy would help the central bank have greater control over their fiscal policy, which is currently dependent on the US Federal Reserve.

He added that low inflation in 2014 was lower than previous years, largely due to low global oil prices. This low inflation rate, he said, helped stabilise the value of the riel – increasing people’s trust in the currency.

“Once economic growth stablises and inflation rate is low, and the value of riel is stable then gradually people will use the riel more and more,” he said.

According to Channy, in the early ’90s internal strife and political instability had dampened Cambodians’ trust in the local currency, leading to the increased use of US dollars.

But, he said that as the economy contnues to grow he expects the use of the riel of follow suit.

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