There are a number of reasons why the Cambodian government has long sought to achieve “rielization” – limit the use of the US dollar and promote the circulation of the local currency, the riel.
First, as Chea Serey, Governor of the National Bank of Cambodia (NBC), has put itthe widespread use of the rail “could improve the effectiveness of the conduct of monetary policy to maintain price stability and support economic growth.
Second, NBC cannot be a lender of last resort – offer loans to banks or other eligible institutions that are experiencing financial difficulties – if you can’t get people to have the local currency.
Due to dollarization, the The Cambodian government is also missing out on seigniorage, or the value that can be gained from printing a ticket.
Cambodia must be more cautious on the global economic recovery. Increasing inflationary trends in major developed economies since the outbreak of the COVID-19 pandemic could put the country’s economy on edge, while recent interest rate hikes by the US Federal Reserve could also cause rail depreciation.
According to the Latest economic update from the World Bankhigh inflation in the United States and subsequent monetary tightening by the Federal Reserve could lead to “increases in domestic price pressures, often resulting in imported inflation.”
However, it is clear that the push to move Cambodia closer to full riel saturation and away from using the US dollar is more than just monetary policy. This initiative also tries to reinforce the connection of the rail with the Cambodian national identity.
In July 2017, the Ministry of Commerce issued an interministerial agreement requiring all companies and service providers to use riel in the price tags of their products and services. And in 2020, NBC announced another campaign to phase out the circulation of low-denomination US dollar bills in the economy.
These initiatives are not only to push for a more robust “rielization”, but have also been accompanied by messages from officials about what it would mean, in a symbolic way, for Cambodia to be more dependent on its own currency.
In Channy, the president of Acleda Bank has said that it is politically important that Cambodia has its currency. “It’s about sovereignty – We will have our own identity, our currency, and it is also a source of national pride,” he has been quoted as saying.
Rail Strengthening it is a way of shedding a past defined by dependency and moving toward a future of self-sufficiency. And when the riel is strong, Cambodians can proudly flaunt the colorful bills and be confident in the power and stability of their nation’s currency.
With the ultimate goal of achieving de-dollarizationNBC and the government, particularly the Ministry of Economy and Finance, have worked hand in hand to push for de-dollarization.
But despite many campaigns, full realization still seems a long way off. What prevents Cambodia from promoting the use of its national currency?
One of the biggest problems can be related to trust. Confidence in the rail deteriorated during the country’s years of turmoil and has struggled to restore itself ever since. During the Khmer Rouge, Cambodia became the only country in the world to have abolished money. Subsequently, the country’s dependence on the dollar was cemented by the massive influx of US dollars during the United Nations Transitional Authority peacekeeping mission in Cambodia from 1992 to 1993, and the use of the dollar gained even more popularity. with the two subsequent inflationary crises in 1993 and 2008.
This story has entrenched a popular view of the riel, and may also entrench a concern about the intrinsic value of the local currency. However, how people react to the use of the riel is revealing as it relates to the perceived value of the riel and whether people have a sense of faith in the currency in their wallets.
While the riel is widely used as a means of payment at the government level, in contrast, the private sector in Cambodia still prefers US dollars, especially in urban areas. Almost all forms of investment, tourism and aid payments are made in US dollars and all restaurants and tourism-oriented businesses they still quote prices in dollars. In general, Cambodians do not hesitate to accept the US dollar, despite recent NBC campaigns.
In 2019, a survey to measure public sentiment on the rail was conducted by The Phnom Penh Post and showed that while many respondents had positive views of the Cambodian riel, they also expressed a number of concerns.
“Using Riel is easy on our daily expenses and easy to maintain, even if it is a little broken or old, it can still be used. More importantly, it also helps promote our national currency to be more stable,” said an official from the Ministry of Labor and Vocational Training.
“However”, added the same respondent, “it is difficult to use the rail to buy expensive things like a car or a house, and some imported products such as electronic and technological items because it requires a large quantity”.
A vendor from Phnom Penh who participated in the survey said, “I am concerned about the sizes and colors of the rail; It generates a lot of confusion among users. Another vendor added that “sometimes it takes a long time to check the rail because some bills are the same size and color, so some illiterate vendors who can’t read the numbers find it very difficult.”
Recently, ABA, one of the largest banks in Cambodia, stopped dispensing smaller US dollars denominations at their ATMs. As a result, many customers have been posting online to show their frustration with the bank, clearly indicating that there is still demand for the dollar.
“I think the ABA should go back to its previous operating model by allowing the customer to hand over small denomination US dollars, such as $10, $20 and $50 bills,” a Facebook user posted in March.
kea borannpresident of the Cambodian Microfinance Association he told the Phnom Penh Post that “to increase the use of the rail, Cambodians and all entrepreneurs must unite. Otherwise, the efforts of banks and microfinance institutions alone will not achieve NBC’s goal.”
De-dollarization is not a policy that can be achieved overnight, as many experts have mentioned. But there are many other paths that the Cambodian government and NBC can gradually implement.
The most important factor that could be implemented to achieve this goal is to build trust on the rail.
“Confidence is the main problem here. When people have confidence in the regulator and in the government’s ability to control monetary policy, then people will be willing to hold the local currency in higher regard.” Jayant Menochief economist at the Asian Development Bank, has said.
The government can also encourage the participation of private institutions in this campaign. For example, the government could launch a campaign to encourage the private sector to pay their workers’ wages in rail.
Other initiatives that could also be considered to appeal to Cambodians could involve banknote design, for example by focusing on the size and quality of banknote paper, as well as designs that make denominations easier to identify for people to use. the rail comfortable. Printing banknotes with a better material, such as polymer, which is used in Singapore and Hong Kong, would be very attractive, as well as extend the life of the banknotes.
Promoting the use of the rail and building confidence in the rail is not just a policy objective for the government; it is also an initiative that reveals something about the Cambodian people and their identity and their trust in institutions as a whole.
This comment is part of the Social Cohesion Project. The project invites young Cambodian researchers to conceptualize and model social cohesion in Cambodia. It is produced in partnership between Future Forum and UNDP Cambodia.