As NBC spearheads the riel agenda to promote wider usage of the currency, its Governor H.E. Chea Chanto told The Post that it will be a long-haul to achieve the ambitious target but the campaigns are on the right track.
What is the real value of the riel today? How do you rate the national currency against its peers in Asean?
The riel has been relatively stable for more than two decades with the rate of around 4,050 riels per US dollar. The Khmer riel has been widely recognised in Asean and also the region.
The Khmer Riel was listed in the interbank market in Guang Xi Zhuang Province, China, in September 2017. Furthermore, the Khmer riel exchange rate also appears on the screen of international markets, particularly Bloomberg and regional commercial banks’ FX trading platforms.
Despite NBC’s efforts to promote wider usage of the riel, Cambodia remains a highly dollarised economy, at about 83 per cent, according to reports. Why is the riel not gaining sufficient traction despite the campaigns?
The trust in Khmer riel was diminished due to [the] chaotic history of Cambodia. After the liberation on January 7, 1979, the central bank was rebuilt from scratch and the riel was injected [in]to the economy when there were no existing currencies at all, and the economy was in barter system. In the meantime, the influx of the US dollar into the economy after economic liberalisation was unexpected and beyond the control of the monetary authority.
The main direction of policy to promote Khmer riel is to restore the public confidence and gradually increase the market demands for the riel.
It is noticed that Cambodians get used to earning and spending in USD for decades; so to change the behaviour and mindset is very difficult and takes times.
However, we observe that there is an increase in the use of riel. According to the joint survey by NBC and JICA, the ratio of Khmer riel in the income and expenditure of household and enterprises slightly increased between 2014 and 2017.
The pattern of the US dollar usage indicates two trends – the riel-based rural economy and the dollar-driven urban economy. How will NBC close this wide gap to promote the riel?
Indeed, the NBC has taken various measures to promote the use of riel in the economy. First, the NBC requires banking and financial institutions to have at least 10 percent of their loan portfolios in riel by the end of 2019.
Through the measure, the banking or financial institutions operating only in the urban areas will have to provide loans to their clients in the riel.
Second, the NBC has been developing the Fast and Secure Transfer System which enable payment in Khmer riel cheaper and faster.
Third, the NBC is developing a payment system through cross-boarder QR code system, where owners of bank account in the Khmer riel can make payment through QR code in a country that has [been] agreed upon. Fourth, the NBC has been contributing to the implementation of the prakas that requires all businesses to post prices of their goods and services in riel.
The above also reflects, industries are not evenly distributed, and the economic wealth is unevenly distributed across the Kingdom. Do you agree?
Income inequality or wealth inequality becomes the world phenomenon for which every country has been struggling to fight.
Besides the dollar, the Chinese yuan, Thai baht and Vietnamese dong are also in circulation, especially in border areas. Are they of any concern to NBC?
The circulation of foreign currencies in Cambodia is our concern and we are working to promote the use of local currency and to increase the share of Khmer riel in the economy.
Over dependence on the dollar could make Cambodia vulnerable to fluctuations in foreign currencies and the dollar is a volatile currency. Are there effective monetary and foreign exchange mechanisms to weather such volatility in the market?
To tackle this issue,we have been adopting managed floating exchange rate regime and it links to Cambodia’s economic growth. The NBC has been accumulating foreign exchange reserves in order to intervene in the foreign exchange market.
Noting the sensitivity of pushing the riel agenda, NCB has taken a soft approach, a ‘moral persuasion’ rather than ‘administrative measures’. Has this been effective and brought about the desired results?
On the policy agenda, NBC has been trying to promote the use of the riel through various measures. According to the joint survey by NBC and JICA, the ratio of Khmer riel in the income and expenditure of household and enterprises slightly increased between 2014 and 2017. Furthermore, the use of larger-value banknotes has been increasing.
Among the 11 types of banknotes in circulation, we noticed that the demand for the 5,000-riel, 10,000-riel and 50,000-riel banknotes are gaining more popular from the public on top of the small banknotes. This suggests that the riel becomes daily means of payment.
Cambodia’s young demographic could fire up nationalism. Do you think the government could capitalise on the younger generation to bolster the riel, which also symbolises the pride of the nation?
Raising awareness of the people, especially the younger generation, about riel is one of the policy targets of NBC. Therefore, we are working with the Ministry of Education, Youth and Sport in order to incorporate financial literacy as a school subject to increase students’ knowledge about money.
The subject will be introduced nationwide in the first phase of the Cambodia School Curriculum Project.
The ‘Riel Day’ campaign which is usually celebrated at the anniversary of the re-introduction of the riel which falls on every March 20 was organised in different places including universities, shopping malls, and so on.
The dual currency system has benefitted nation building, maintained macro-economic stabilityand drawn the much needed foreign direct investments. But is this a sustainable model and a prudent monetary policy in the long run, especially if there is an economic hiccup?
Of course, the dollarisation is the barrier of conducting monetary policy such as the role of lender of the last resort of the central bank.
This role can ensure the financial institutions to have enough riel liquidity and as a result, they can provide KHR loans to SMEs [small and medium entreprises] or households in the rural area. In the long-run, dollarisation might affect economy as a whole.
That is a reason why, we try so hard to promote Khmer riel in many ways but enforcing administrative procedure might discourage the FDI [foreign direct investment]. Hence, we need to be careful before employing the policy since we are in need of FDI for sustainable development.
Using one’s national currency certainly boosts sovereignty, so far that has not been the case as the dollar remains intertwined in Cambodia’s financial system. Please comment on this?
Dollarisation started since early 1990s, so it is almost three decades. It is rooted in the mindset of the Cambodian population, so it needs time and concerted efforts to promote the use of local currency.
Therefore, we have constantly raised public awareness through books, videos, and even campaigns.
For example, to exchange new banknotes with the public, especially during the Khmer New Year and Pchum Ben; we organise Riel Day to celebrate the re-introduction of Khmer riel into circulation every year.
The public now has understood more about the roles of riel in the economy and we can see the stronger confidence on Khmer riel as well through the increasing demand of Khmer riel from the public.
The government launched the Cambodia Securities Exchange in 2011 to develop the capital market. How has this contributed so far?
NBC has already approved the issuance of corporate bonds in KHR by banks and MFIs [microfinance institutions]. Recently there is Hatha Kaksekar and the coming issuance would be LOLC (Cambodia) Plc.
How much is the estimated annual loss due to the economy’s dependence on the dollar?
The use of foreign currencies incurs lots of costs such as the loss of seigniorage, the ineffectiveness of monetary policy, the limited ability of the central bank to perform its functions. In monetary terms, the possible loss in seigniorage is between 0.1% - 0.5% of the GDP according to the study by Duma (2011).
Are you concerned about the loss of seigniorage due to the current trend?
As mentioned previously, dollarisation incurs costs. In the current context, maintaining macroeconomic stability is also important.
Do you see trade groupings like Asean, as stumbling block to the Kingdom’s efforts in promoting its riel agenda?
I don’t think trade groupings discourage our efforts in promoting the riel. In contrast, we would be able to promote our currency in payments and settlements through various agreements.
Is the market ready to embrace the riel. Could you please elaborate?
Yes, if the individual stakeholder is willing to do so. In this case, our current exchange rate is beneficial for the market which means that it is not much different whether they pay in USD or Khmer Riel.
The National Bank of Cambodia has been trying to raise public awareness on the use of the riel and I strongly believe that our people will trust and continue to support our local currency.