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Cambodia: Riel avoids the slump of the baht
Cambodia’s riel has remained relatively stable during the pandemic, despite the havoc wreaked on its economy from the loss in tourism and manufacturing jobs.
Last week, Bloomberg named Thailand’s baht as Asia’s worst-performing currency. Tourism dollars contributed more than 62 percent to Thailand’s current account surplus in 2020 but after six years in the black, the country is reporting a deficit.
Lawrence Kook, the Cambodia Derivatives Exchange’s director, told Khmer Times that the Kingdom’s comparatively small economy has isolated it from larger macroeconomic trends as seen in Thailand and other emerging market economies.
“Cambodia has not gotten the attention of foreign investors and aggressive currency traders like George Soros whose aggressive trades are blamed for the 1997 Asian Financial Crisis, which resulted in the baht losing value like air escaping from a balloon,” Kook said.
Soros is believed to have put some $1 billion in a short position against the baht in 1997, just months after Thailand decided to de-peg its currency from the US dollar. As a result, the Bank of Thailand purchased the baht with dollars in foreign exchange markets and raised interest rates, resulting in a loss of global confidence. The issue rapidly escalated and spread to other Southeast Asian countries.
Noting that while the National Bank of Cambodia has tightened its monetary policy by encouraging the use of the riel, Kook noted some 70 percent of the currency in circulation is still US dollars. He added the number is “not significant enough to entice investors to play the riel”, he said.
“Cambodia, when compared with Thailand, is a completely different story. While a lot of Europeans certainly visit here, [that number] is not as much as Thailand’s. The pandemic hit both countries, but the Thai industry was much harder hit and [more] vulnerable,” he said.
However, while the baht is Asia’s worst-performing currency, it is important to note that it is all going according to the Thai central bank’s plan, with Bloomberg saying it has “been trying to rein in appreciation of the currency since last year”.
Kook said this is because of the belief that a lower currency will boost exports and entice more visitors to the country when the pandemic is over.
Comparatively, the riel has remained stable, keeping the same exchange rate as pre-pandemic levels, with KHR to US dollar rates fluctuating in the 4,000 to 4,100 riel per dollar range over the last year. Kook added the dual currency system in the country has granted the National Bank of Cambodia the advantage of implementing stricter financial policy measures that allow it to maintain stable rates.
“As Cambodia has not yet caught the attention of international investors and [looking at] future trends, my long-term forecast is for the riel continuing to depreciate and that may not necessarily be bad for Cambodia,” Kook said, noting that it may help boost manufacturing exports.
Source: https://www.khmertimeskh.com/50835070/riel-avoids-the-slump-of-the-baht/