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NBC can bank on domestic currency to set monetary policy tone: CIMB’s Bun Yin

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Bun: “Having our own currency will provide the central bank an avenue to manage monetary policy.” Hong Menea

NBC can bank on domestic currency to set monetary policy tone: CIMB’s Bun Yin

A RIEL-based economy will empower the National Bank of Cambodia (NBC) to manage its monetary policy affairs more prudently and at the same time help safeguard the domestic economy from any external financial or economic shocks.

While the dual currency practice, the use of riel and the US dollar, has benefitted Cambodia’s economic growth to a large degree by instilling macroeconomic stability and bringing  in the much-needed foreign direct investments, the growth landscape could alter if the Kingdom switches to the riel.

Speaking to The Post in conjunction with the National Bank of Cambodia’s 39th Anniversary of The Riel Day celebration, Bun Yin, CEO of CIMB Bank Plc, said the country would benefit immensely if the riel is adopted as the sole currency in the Kingdom.

“In general having our own currency will provide the central bank an avenue to manage monetary policy. If Cambodia is in control of its own currency, it is able to set benchmark or policy rates to guide the banking and financial sector."

“Effective monetary policy aims to stimulate the economy while providing cooling measures to prevent it from overheating. [In the] long term, this will have positive implications for the stability of the economy and the prices of goods and services,” he added.

Cambodia remains a highly dollarised economy, with about 83 per cent of the local economy – from the banking sector to street vendors – transacting using the greenback – which has dominated the market since 1992 when the United Nations Transitional Authority forces set foot in the country.

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A riel-dominated economy will help NBC control circulation of money. Courtesy: NBC

Undoubtedly, Cambodia’s economy is on a strong footing, with solid gross domestic product growth of seven per cent for the last two decades, easily outclassed its Asean peers and has emerged as one of the fastest growing economies in the world, according to international agencies.

A wide usage of the riel could have a far-reaching impact on other sectors as well. It could be a stimulant for the production sector, as Bun puts it.

The riel could rev the nascent manufacturing sector, bring down production costs and boost cheaper exports, which could ultimately create job opportunities and earn foreign exchange for the exchequer.

“The cost of production can come down if we use the local currency and Cambodia can export more. It is good for the country,” he added.

Despite attempts by the NBC to reduce the circulation of the dollar and promote wider usage of the riel, there has been tepid response from the market and policy makers continue to pursue a mild approach to push the riel agenda.

“We have to understand that switching from USD to local currency will be a long term initiative. We cannot change business practices and individual behaviour overnight."

“However, we are seeing some coordinated efforts from the government, regulators and even private businesses,” added Bun.

He said that the NBC on its part has made a strong push to provide riel liquidity to the general public via riel loans and simultaneously to banks via riel-denominated  LPCOs (Liquidity-Providing Collateralized Operation). Additionally, taxes and utility bills are also paid in riel.

“We are seeing more food and retail outlets display their prices in riel as well. All this has happened quite recently, in the past three to five years."

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The riel can stimulate the manufacturing sector and rev consumer demand. Post Staff

“If we are able to maintain the same rate of change over the next few years, we will certainly see more meaningful adoption of the riel across all levels of society,” he added.

In late 2016, the NBC issued a Prakas to encourage banks and microfinance institutions to maintain 10 per cent of their loan portfolio in riel – another move to promote the national currency.

“I believe that the banking sector is doing its part by increasing it riel lending and deposit-taking activities. However, we also need to see more participation from the private sector in terms of creating demand for the riel."

“I am optimistic that CIMB will achieve the targets set by the NBC. In fact, we have a specific working group to set the time line and they report to me every week on the progress. I am very confident."

“Regardless whether they are foreign or local banks, the main challenge is subject to “demand and offer [supply]”."

“We have to create more demand for the riel in the whole economy and we believe the challenges would be resolved if we all work together,” said Bun.

But he cautioned that there is “perception problem” and this need to be changed to achieve the NBC’s goal.

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