Cambodian banks need not dwell on the fallout from the recent Vietnamese currency scam. Although ATMs in the Kingdom were in some cases cleaned out by Vietnamese taking advantage of the huge gap between the official and black-market rates for the dong, it was Techombank across the border that bore the financial brunt losing an estimated US$1.5 million.
The main lesson Cambodia should take from this experience is that rushed, ill-advised efforts to dedollarise often lead to problems that can ripple through the financial industry and the wider economy.
The ATM scam was a minor symptom of much larger problems in Vietnam. By implementing severe foreign currency restrictions in a bid to force use of the dong, demand for the currency has become increasingly artificial. The 8-percent gap between the official dong rate and the black-market rate represents the extent to which Vietnamese still lack confidence in their own currency. In turn, this monetary weakness has led to problems analysts argue must be addressed to safeguard future economic growth.
In a note titled Time to Act, Standard Chartered Bank at the end of last week joined a growing chorus calling on Hanoi to raise interest rates as inflation threatens to further push ordinary citizens away from dong deposits and instead further towards refuge in gold and the greenback, which would in turn further threaten the value of the dong. The base interest rate is already at 9 percent but Standard Chartered said 12 percent would be more appropriate by mid-year.
So although Vietnam is light years ahead of Cambodia in terms of reducing dependence on the dollar – the dong represents about 80 percent of all money in domestic circulation compared to just 10 percent in the case of the riel here – this has come at a heavy price. Inflationary pressure and monetary instability are of growing concern.
Cambodia is facing difficult questions of its own on whether to further enshrine use of the riel, notably at the forthcoming stock exchange.
But to rush use of the riel for the sake of reasons such as national pride rather than prudent monetary policy would be a mistake.
Laos was able to launch its first bourse earlier this month with listings in kip because its currency has enjoyed greater stability in recent years than the riel.
Cambodia by comparison therefore has a long way to go when it comes to increasing local currency use – a major long-term aim – but that means it can learn from mistakes made in other countries. With this in mind, the Kingdom need look no further than its eastern neighbour.