THE National Bank has signalled it's intention to get rid of dollars and other foreign
currencies from everyday use.
It's now up to the Government to insist that payments are officially "riel only."
According to a study by Phnom Penh-based consultants IMIC, 61 per cent of the population
wish to "dedollarize" Cambodia - and for all sorts of economic reasons,
the Bank agrees with them, saying: "the Government should lead the way in order
to show that it is serious about adopting this policy.
"That means that Government entities and state-owned enterprises should stop
collecting revenues in US dollars or other foreign currencies, such as for telephone
and electricity charges, taxes, airline tickets..."
May Tola, deputy director of the Bank's Exchange Management Department, now on secondment
to the Social Fund of Cambodia, said that the answer to de-dollarization was not
through legislation.
Cambodia had to "create an economic environment which is clearly to the people's
advantage to switch to the riel. The de-dollarization process should work smoothly
with no harm to the growth of economic activity. It should help the economic development
and boost public confidence in the national currency."
The Khmer Rouge abolished money and market trading when they came to power in 1975.
Cambodia traded by barter, gold and in Vietnamese dong soon after Pol Pot was ousted
1979. The riel was reissued in March 1980, and was favored as the US dollar and Thai
baht were restricted in what was from then a closed economy.
As Cambodia gradually opened its doors to the outside world, the dollar and baht
gained popularity. Dollars flooded the market following trade liberalization in 1989
and, particularly, the coming of UNTAC from late 1991.
Nowadays, all traders - from those selling a can of Coke to a Mercedes - accept dollars.
On the western border, Thai baht is a common unit of payment; in the east it's the
Vietnamese dong.
Tola said that dollars brought some advantages to Cambodia because confidence in
the riel was low, and so many low-valued riel notes were needed to buy expensive
items.
But there were disadvantages: people couldn't distinguish counterfeit dollars; the
amount of cash in circulation couldn't be easily assessed, and that affected monetary
policy; the volume of dollars encouraged money laundering; dollar use indirectly
helped finance the US Government; and interest was being lost to the Cambodian economy.
Tola said that successful "dedollarization" would only happen when people
voluntarily gave up their dollars for riel.
The National Bank had set up measures to help this happen.
The exchange rate was now stable and inflation was low, which encouraged confidence
in the Government and, by extension, the riel.
The Bank had also experimented in setting an interest rate on savings at three per
cent. When that had no noticeable effect on the savings of riel, the Bank changed
its policy to allow commercial banks to freely set their own rates, on the condition
the rates be "positive."
The Bank had also recently set up a clearance house to settle checks made out in
riel, but as yet its services have not been developed. It also plans to set up Cambodia's
first ATM machine, which will initially give out dollars but will switch to riel
once the "dollar discouragement program" formally becomes policy.
Since March this year, new notes up to the value of 100,000 riel ($40) had been in
circulation - this should mean riel can be used for high-value purchases.
"When the dedollarization process is publicly announced, the National Bank will
encourage commercial banks to reduce their lending in dollars," Tola added.
In future, the auction of US dollars to the market will be geared only to those importers
who want to transfer money to pay for goods and services abroad, he said. Presently,
US dollars are made available to the entire market, even those paying for goods and
services locally.
National Bank officials said it was difficult to fix a date on when the "dedollarization"
would become policy.
"It depends of the Government, the confidence of the people, and continued economic
development," they said, adding that the International Monetary Fund (IMF) had
recommended to the Ministry of Finance that "dedollarization" be pursued.
They said that not only must the government direct its ministries and departments
to insist on riel transactions, but also that restaurants, hotels and traders do
the same.
