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Central bank seeks to give riel a boost

Central bank seeks to give riel a boost

Cambodia’s central bank will use its upcoming Second Macroeconomic Conference to discuss how best to promote the use of the riel and hasten de-dollarisation in the economy, according to an official release yesterday.

According to a statement from the National Bank of Cambodia, the theme of this years conference, to be held in June, will be Leveraging Financial Market Development, where the NBC will be seeking input from experts, researchers, academics and the general public on the topic of encouraging greater use of the local currency.

“Dollarization presents both advantages and disadvantages. As for its advantages, it has accompanied the rapid economic growth and helped support public confidence at the early stages of development. It also supported financial deepening and intermediation,” the announcement reads.

“However, dollarization has also limited seigniorage revenue and the central bank’s role as a lender of last resort. More importantly, it constrains monetary policy implementation and may complicate financial stability risks, in particular liquidity risks,” according to the release.

Cambodia has experienced high dollarisation in the last two decades, rising from 60 per cent in the 1990s and to 80 per cent in the 2000s, with 83 per cent of deposits currently dominated in the US dollar.

The announcement also showed, however, that riel circulation and deposits had increased on average by 17 per cent and 24 per cent per annum, respectively, during the last two decades.

Prime Minister Hun Sen on Monday, during a decree delivery in Phnom Penh, said the use of the country’s local currency has increased on the back of improved public confidence.

“Although Cambodia allows using foreign currencies broadly in the market, the settlement of the local people is mostly in riel,” he said.

Hiroshi Suzuki, CEO and chief economist at Business Research Institute for Cambodia, welcomed the action by the NBC but said efforts to boost the use of the riel could be hastened.

Dedollarisation, however, he said should be approached more cautiously.

“This is because drastic de-dollarisation could invite shock to the Cambodian economy,” he said.

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