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Cambodia: Circulation of Riel has grown by an average of 14% per year in last decade, reflecting its growing demand

  • Mar 21, 2023

The Governor of the National Bank of Cambodia (NBC), His Excellency Chea Chanto, the Governor of the National Bank of Cambodia, responded to a set of questions provided by Khmer Times in conjunction with the 43rd Anniversary of the Reintroduction of the Khmer Riel. The following are excerpts of the questions and answers in a Q and A format

  1. How is the campaign to promote Riel coming along over the years and how much success has the National Bank achieved in this aspect?

Governor: The National Bank of Cambodia (NBC) has launched several campaigns to raise public awareness about the importance of the Riel. These campaigns include celebrating Riel Day, promoting the importance of Riel through seminars and media, swapping old, damaged, or torn Riel notes for new ones, establishing the economic and monetary museum “Preah Srey Içanavarman Museum” to showcase the history of Riel and its role in economic and social development, and conducting research on the current situation of dollarization in Cambodia and policies to promote the use of Riel. All of these measures have significantly contributed to mainstreaming the importance of Riel among the public, especially the youth. During the last decade, the circulation of Riel has grown by an average of 14% per year, reflecting the growing demand for Riel in the economy even though the level of dollarization remain high.

  1. When does the NBC envisage an economy which is driven by the Riel instead of the US Dollar?

Governor: The use of Riel has been phased in accordance with the economic situation and market mechanisms. The NBC has encouraged the participation of all stakeholders, particularly the private sector, in promoting Riel since the NBC and the Royal Government of Cambodia have not enforced a policy to mandate its use. We expect that Riel will gradually play a more significant role in the economy, including in daily transactions, business, investment, and savings in the future. However, it may take time for all stakeholders to become more active in using Riel.

  1. Would the acceptance of foreign currency from tourist markets, affect the usage of the Riel and its long-term viability as the national currency? Examples of this are the Chinese RMB and Thai Baht.

Governor: Tourism is one of the important sectors in supporting the economic growth. Prior to the Covid-19 crisis, Cambodia received about 6.6 million international tourists, but declined in 2020 and 2021 due to the Covid-19 pandemic. In this situation, the Royal Government of Cambodia has been implementing a strategy to promote tourism sector after the Covid-19 crisis. As results of effectiveness of this policy implementation and management of the Covid-19 in Cambodia, combined with attractiveness of historical and natural sites, the number of tourists has increased faster than expected, reaching 2.3 million in 2022, and is expected to steadily grow going forward. Most of the tourists visiting Cambodia come from the region, including China, Thailand, Vietnam and Korea, and in the past, we have observed that many international tourists use US dollar and electronic payments for their convenience. In addition to payments with Visa, Master and Union Pay, the NBC allows tourists to use WeChat Pay and Alipay, which are popular among Chinese people. To facilitate payment more easily, the NBC has developed cross-border electronic payment systems, and in the future, visitors from China and other countries in the region will be able to make payment in Cambodia through bilateral payment systems without using banknotes or US dollar. In this regard, the NBC will continue to promote the convenience of electronic payment for tourists without the need to use their own banknotes directly in Cambodia, while the use of banknotes in those currencies is also less popular due to the difficulty in carrying cash and growing habit of using electronic payment systems.

  1. Is it possible to have a quantum for the circulation of Riel and US Dollars in the economy and are the concerted attempts to increase the Riel quantum over the dollar?

Governor: The USD is used alongside the Riel in the Cambodian economy. The NBC is the sole issuer of Riel, so we exactly know the amount of Riel in circulation in the economy. However, we are unable to quantify the amount of USD circulating outside the banking system. Currently, the Riel in circulation is more than 14 trillion, up from about 3.8 trillion 10 years ago. The USD deposit in the banking system accounts for about USD37.6 billion, or 88.8 percent of total deposits. Therefore, we continue to promote the use of Riel, and we believe that in the long term, the Riel will be used more than the USD if we all actively participate in the promotion of Riel usage.

  1. Are there plans for the Riel to be floated in the currency market?

Governor: The NBC adopts a managed floating exchange rate regime, allowing the exchange rate to fluctuate in line with market conditions, but if the volatility is too large to affect price stability, the NBC will intervene in the foreign exchange market to adjust the exchange rate to a level appropriate to the economic situation. It should be noted that due to high degree of dollarization, the NBC has not yet been able to fully implement monetary policy, such as the use of policy interest rates to influence on market interest rates. Therefore, maintaining stable exchange rate is an important monetary policy tool to contribute to stabilizing prices and creating favorable conditions for the national economic development. Since August 2022, the NBC has revised the official exchange rate setting based on the market situation and published the exchange rate twice a day to make it easier for stakeholders to use this exchange rate as a benchmark, particularly to facilitate the payment in KHR smoothly. When the economic and financial situations further develop and the level of dollarization decreases, the exchange rate of the Khmer riel against the US dollar may fluctuate more, and the NBC will set an appropriate level of volatility that suitable for economic development.

  1. Would there be a point in time in the near future when all transactions will be quoted and billed in Riel instead of USD and Riel?

Governor: In the traditional markets, prices of goods and services are mostly tagged in Riel, especially for small and medium values of transactions, while large-value transactions are more denominated in USD. In most supermarkets, businesses tend to tag the prices of their products in both KHR and USD. Indeed, price tag in Riel is compulsory as required by the Ministry of Commerce in accordance with the Prakas issued in 2013 and 2017. This task will be further boosted by both the public and private sectors to increase payments in Riel. Nowadays, there are more companies and enterprises that pay their workers’ salaries in Riel, so it is not difficult to increase the payments in Riel in the market.

  1. How many percent of the ATM’s, CDM’s and CRM’s transact in Riels throughout the country and what is the percentage when compared to those machines dispensing USD?

Governor: By the end of December 2022, there were 4,390 ATMs nationwide and the total transactions through ATMs reached 4.67 million, a decrease about 4 percent compared to the same period in 2021. Meanwhile, the total value of transaction registered at USD1.28 billion, of which the share of KHR transaction accounts for 22.4 percent (16.4 percent in 2021). On top of transactions through ATMs, digital payment, especially via QR Code payment or mobile transfers, has been increasingly popular among the public.

  1. What are steps taken by NBC to maintain the steady exchange rate of the Riel against USD and how many times has it intervened the past year to maintain the exchange rate?

Governor: The NBC maintains exchange rate stability with various tools including foreign exchange (FX) intervention and other monetary policy instruments. To smoothen the volatility of the exchange rate based on market conditions, the NBC intervenes in FX market by buying or selling USD. In 2022, the demand for Riel rebounded given the recovery in economic activities. As a result, NBC intervened only 3 times by selling USD9 million to banks compared to a sale of approximately USD600 million in 2021. Local currency is also injected into the banking system in a prudent manner through Liquidity-Providing Collateralized Operation (LPCO), in consideration of the current and prospective exchange rate and interest rates in the market. The excess liquidity of banks and financial institutions is absorbed by the Negotiable Certificate of Deposits (NCDs) to lessen the pressure on the exchange rate as well. These main instruments help balance out the demand and supply of Riel and USD to achieve a stable exchange rate. Our policy implementations are also in line with the fiscal policy of the Royal Government.

  1. The U.S. dollar’s dominance as an invoice currency is significant in Asia and especially in Cambodia. Are there any measures to tackle this in the coming future to give the Riel more weight and credence and mitigate the volatile exchange rate of the USD?

Governor: Cambodian payment systems have been connected to the region to increase the use of the national currency in regional payment transactions. Since September 2017, the Riel has been listed in the interbank market in Guang Xi Zhuang province in China, and the Riel exchange rate against the Chinese yuan has also been displayed on international markets. In addition, the Cambodian payment system has also been connected with the Thailand’s and Malaysia’s payment systems, which allows those who have a Riel account to easily make cross-border payments directly through a QR code. Currently, the NBC is expanding the connections of its payment systems with other countries, such as Laos, Vietnam, and Myanmar.

  1. Are there any steps being formulated to internationalize the Riel in line with other Asian countries which have started to use their local currencies in domestic transaction?

Governor: For the moment, we do not have any plans to internationalize the Riel, but to enhance the use of Riel in our domestic economy.

  1. Are SME’s using the Riel more than the USD in their transaction to mitigate exchange rate risks?

Governor: Most of the SMEs use Riel particularly in the agricultural sector and in the rural area as the payment for agricultural products and daily expenses are in Riel. According to the survey of NBC and JICA in 2017, agriculture is the sector that the revenues are mostly in Riel up to 86 percent . Thus, the promotion of the use of Riel will contribute to boost economic growth with high inclusiveness.

Source: https://www.khmertimeskh.com/501258795/circulation-of-riel-has-grown-by-an-average-of-14-per-year-in-last-decade-reflecting-its-growing-demand/