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Cambodia's central bank urges broad promotion of local currency usage

Xinhua, October 20, 2016 Adjust font size:

Neav Chanthana, deputy governor of the National Bank of Cambodia (NBC), or the central bank, on Thursday called for the broad promotion of the use of local currency riel in order to reduce dollarization.

Foreign currencies, comprising mainly U.S. dollars, accounted for 83 percent of cash and bank deposits in Cambodia at the end of 2015, up from 56 percent in 1995, according to the NBC.

"The promotion of the use of riel is a difficult and complicated task and requires concerted effort and participation from both public and private sectors," she said during a seminar on the survey result on the use of riel.

Chanthana said the Cambodian economy has entered another phase of development, referred by the International Monetary Fund (IMF) as the new frontier economy. In this context, dollarization may become costly for the economy.

"Dollarization exposes the economy to macro-constraints such as undermining the effectiveness of monetary policy, foreign trade policy, financial stability, losing of seigniorage...etc.," she said. "In this regard, the government has clearly highlighted the importance of promotion of the usage of riel in various key policies."

The greenback flooded into the Cambodian economy through the intervention of the United Nations Transitional Authority in Cambodia (UNTAC) in their peace operations in the country in 1993, during which UNTAC spent 1.7 billion U.S. dollars, equivalent to about 75 percent of Cambodia's GDP at that time, mostly on rent and local services.

Although the Cambodian government has never officially adopted dollarization, the Southeast Asian nation has become one of the most dollarized economies in the world, said the survey conducted by the NBC.

"The U.S. dollar is used not just for commercial transactions, but also for daily transactions," it said.

The survey, having interviewed 2,273 households in all 25 provinces last year, showed that most of their salaries or wages were paid in the greenback. However, only a small proportion of their expenditures were in U.S. dollars, particularly on telephone service and house renting.

It added that the majority of people borrowed in the greenback as loan or transaction requires foreign currency.

"In general, household respondents are quite supportive for the promotion of riel usage," the survey said. Endit