The time is now conducive to push the government’s riel agenda as Cambodia’s macro-economic parameters indicate that the contemporary market is relatively ready for the national currency to be the main medium of exchange.
Cambodia has a unique dilemma – juggling two currencies – the riel and the US dollar – both functioning in parallel to support trade and commerce for nearly three decades.
But a continuous dollar-dominated economy could pinch on Cambodia’s sovereignty to roll out broad-based monetary policies as the dollar’s fate depends on the US Federal Reserve.
Bankers and experts say Cambodia is now ready to shed the dollar-linked image as the steadfast riel’s stability could weather any economic turbulence to better reflect the resilient economic fundamentals.
“The market conditions are important. There is a good monetary policy, good economic growth for the last two decades, the riel is stable compared to other currencies in the region, and there are no fluctuations with inflation low. These factors are important,” Dr In Channy, President and Group Managing Director, of Acleda Bank Plc told The Post.
The Kingdom has chalked up an impressive growth record for nearly two decades, with gross domestic product (GDP) growth at about seven per cent, a moderate inflation rate of 3.2 per cent (2018), current account deficit at about 10 per cent and foreign reserves at $11 billion; and the riel value is stable at 4,050 to the US dollar.
These are a few indicators that the economy is fertile for the riel to be the sole currency, which so far has played second fiddle to the dominant dollar.
The National Bank of Cambodia (NBC) is trying to tilt the currency imbalance in a genial fashion to avert chaos in the financial market and build confidence in the riel to consolidate its position.
The central bank has undertaken a slew of measures to promote wider use of the local currency – such as the 10 per cent loan portfolio requirement for all commercial banks and microfinance institutions to be achieved by 2019 as well as requiring payment of taxes and utility bills are settled using the riel. And, traders and supermarkets,have been directed to display price tags in riel.
“It is important for Cambodia to have its own currency. It is about sovereignty. We will have our own identity, our own currency. It is national pride as well,” added Channy.
But that can be a herculean task given the dollar is so intertwined in the local economy.
The bulk of the transactions are still conducted using the dollar – about 90 per cent of commercial banks and microfinance institution loans are dollar-denominated while private sector wages are paid in the US currency.
For instance, about 700,000 garment workers are paid in US dollars, according to numerous reports.
The dollar is still a much preferred currency in property dealings (sales and purchase) and even at the retail level, the dollar still remains popular.
“The challenge is that over 80 per cent of money in circulation in Cambodia is in US dollars and we are not the only country as there are a few other countries [that] do the same [dual currency system]. But we are different from others.
“It should be a psychological approach and market approach which the government of Cambodia is doing successfully. It should not be regulatory forced. I think key business sectors will gradually accept the Khmer riel. I have noted so far increasingly, the public is favorable with the Khmer riel,” Channy added.
There is a wind of change. The riel seems to be slowly gaining trust and its usage is rising.
In the first six months of 2017, the NBC pumped in about two trillion riel ($488 million) into the economy, which was an 18 per cent jump compared to the year before. A clear signal that demand for the riel is rising.
Samsen Neak, research director of Nuppun Research and Consulting, said the riel has seen an increased usage in the market, especially in the cities.
“In the past, malls, supermarkets and high-end restaurants displayed prices only in US dollars,but now they have them in both dollars and riel or in some places only in riel.
“Usage of riel is also about national pride. It is time for Cambodians to promote the riel. But, this has to be a gradual process, given that the riel was abolished during Pol Pot’s time and the currency depreciated very sharply in early 1990s when Cambodia was in transition to market economy,” added Samsen.
He said if the riel emerges as a single dominant currency, then the NBC would have a greater range of options to implement its monetary policies, along with fiscal policies by the Ministry of Economy and Finance.
“Now, with highly a dollarised economy, options for monetary policies to navigate the economy are very limited. The most important thing to do is to make sure that the riel continues to be stable."
“And, in the meantime, the next steps the government might want to explore is to have price quotes in riel for all government works and to encourage the private sector to pay salaries in riel,”said Samsen.