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Cambodia: De-dollarisation ‘will give nation greater control over monetary policy’
Dr In Channy, chairman of the Association of Banks in Cambodia and also the chief executive officer of ACLEDA Bank, in an exclusive with Khmer Times’ Sok Chan marking the 41st anniversary of the reintroduction of the riel, spoke about the banking industry. He discussed the challenges it faces plus the cohesive and coherent efforts to bolster the riel as well as the much-talked-about de-dollarisation issue. The following are excerpts of the interview.
KT: What has ABC been working on with its members to bolster the use of the riel in the country and financial inclusion in the Kingdom?
IC: In the past year, the banks have strongly supported following the NBC’s lead in encouraging customers to use the riel [KHR]. Throughout Cambodia, there are more than 3,100 ATMs in place and a large majority of those offer their services in KHR. Banks also have significantly increased the KHR-denominated share of their outstanding loan portfolios. While banks are offering high interest rates on depositor’s savings, KHR loans are offered at similar rates as foreign-denominated loans. Only four years ago, in early 2017, just 1 percent of all outstanding credit was denominated in KHR. The financial sector has increased that share to 11 percent as of 2021.
Besides bolstering KHR on the financial institutions’ balance sheets, the ABC, as well as the Cambodia Microfinance Association (CMA), have strongly increased efforts to increase financial awareness in the country. ABC members have shared various educational videos and other materials in the Khmer language throughout the extensive social media networks of all ABC members. Furthermore, their involvement in activities and workshops has been intensified across the board.
For example, workshops supported by ABC include ones on financial awareness. The ABC and its members actively support the NBC as well as relevant government bodies, such as the Ministry of Women’s Affairs, in conducting workshops on financial awareness. As of now, such workshops have been conducted in four provinces, Siem Reap, Preah Vihear, Kratie and Steung Treng. Banking and Microfinance in Cambodia workshops have been conducted eight times in Mondulkiri, Banteay Meanchey, Battambang, Ratanakiri, Siem Reap and Steung Treng provinces. More than 1,000 participants were reported as attending those workshops.
KT: How are ABC and the nation’s banks preparing for the advent of a single currency and de-dollarised economy?
IC: All banks are growing their KHR share in deposits as well as in outstanding loans. Efforts by the NBC, such as slowly reducing the number of circulated small-denominated USD notes, empower banks to move forward in advocating the usage of KHR to all their customers. What is clear, though, is that de-dollarisation will be a long process and will likely take many years to fully finalise. While the Cambodian economy is growing, so is the independence and international acceptance of the KHR. Once the KHR is ready to be the main currency in the economy, the banks will be ready to serve the “riel-ised” (KHR) economy.
KT: What are ABC members’ views or comments regarding the de-dollarised economy?
IC: The banks are confident in the guidance of the NBC and the Royal Government´s steps in strengthening the KHR as our national currency. While we know that many customers, especially foreign investors, prefer to use the USD, the financial sector is well aware of the benefits a mainly KHR-denominated economy will bring. With the KHR as the main currency, the NBC will have intense monetary power to control inflation and ensure stability in times of crisis. With a dollarised economy, Cambodia is subject to US and global market fluctuations and depends on the international community to exercise fair economic policy.
For example, while the USA is able to print more USDs to increase the money supply in their economy during a recession, as is the current case, theoretically Cambodia´s USD-denominated reserves lose value. With the KHR as the main currency, Cambodia will be more resilient and the Royal Government can control the local economy to the benefit of all Cambodians. This monetary power and stability will also benefit banks and other financial institutions operating in Cambodia.
KT: What are you going to do with the USD reserves? How much USD reserves do ABC members hold?
IC: Bank assets amounted to $42.2 billion in 2019, up 23.2 percent, compared with 2018. This is the equivalent of 156.4 percent of 2019’s GDP [gross domestic product]. Most of that is denominated in USD. In general, most banks are well capitalised. The solvency ratio, the local equivalent of the capital adequacy ratio, was stable at 24.0 percent in 2019 vs 24.2 percent in 2018 and comfortably above the 15 percent minimum deemed prudent. With a growing share of KHR on both sides of financial institutions’ balance sheets, the share of USD reserves will decrease naturally. Given the globally accepted liquidity of the USD there is no concern for decreasing the reserves over time as necessary in supporting the KHR.
KT: Do you personally support de-dollarisation? If so, why?
IC: Yes, and the ABC and its members support the Royal Government’s long-term goal to de-dollarise. With the current high dependency on the USD, the Royal Government and the NBC have little control over its monetary policies. As a result, it does limit Cambodia´s abilities to facilitate economic growth and prevent or counter a financial crisis. Therefore, the government’s intention to de-dollarise the economy is the right step in ensuring the sustainability of Cambodia´s outstanding economic success over the past years.
KT: Is it too soon to de-dollarise the economy? Could it stabilise or de-stabilise the economy?
IC: It is a good time for the NBC to slowly implement a de-dollarisation strategy. Higher KHR circulation will help the NBC to perform and manage its monetary policy effectively. This will promote economic growth and enhance financial stability. While we know that the de-dollarisation process can have negative effects if rushed in too short a time-span, like the case arguably has been in our neighboring country of Vietnam, the ABC and its members are fully optimistic about the steps taken by the NBC. The Royal Government is doing the right thing to de-dollarise and the pace at which this process has been tackled has been shown to be very adequate.
Source: https://www.khmertimeskh.com/50833332/de-dollarisation-will-give-nation-greater-control-over-monetary-policy/