Thailand
Cambodia: ‘Electronic payment systems to enhance economic efficiency, financial inclusion and use of Riel’
The National Bank of Cambodia has started implementing various policy measures to promote the use of riel in the economy based on market mechanisms. The use of riel has been facilitated through the development of electronic payment systems and other policies. For instance, ‘Fast Payment’, ‘Retail Pay’, ‘Bakong’ and other electronic payment systems have made the riel payments more convenient and with lower costs.
Khmer Times caught up with NBC Governor Chea Chanto on the 42nd Anniversary of the Reintroduction of the Riel to know the measures that are put in place to enhance the popularity of national currency
National Bank of Cambodia (NBC), payment wallets and digitalisation of banking services and opposition to cryptocurrency
Cryptocurrencies are forbidden in several countries because they are not issued and regulated by any government or public authority. In Cambodia, the NBC also does not recognise cryptocurrencies as forms of digital payment since they present as trading instruments with values which are fluctuating unexpectedly and unverifiable transactions. Therefore, we believe that cryptocurrency is exposed to numerous risks. Given the uncertainties and unforeseen risks, in 2017, NBC alerted and forbade banks and financial institutions from trading cryptocurrency activities. In addition, in 2018, NBC in cooperation with relevant authorities released a joint statement aimed at warning the public and forbidding financial institutions (FIs) to deal with any crypto activities.
In order to gradually shift from a cash-based economy to electronic payment, NBC has developed and modernised electronic payment system. The Bakong, a blockchain-based payment system, was introduced in 2020 to promote financial inclusion, address the issue of interconnectivity and interoperability across platforms of payment operators and support the ease of payments in local currency. NBC has also encouraged FIs to reap the benefits of technological advancement by introducing various digital financial services which are convenient, secure, and cost-effective for clients.
Strength of the riel and or the dollar and significant impacts on inflation rate
The fluctuation of the exchange rate undeniably affects the domestic inflation rate through lower or higher costs of imported goods. If the KHR depreciates against the USD, imported goods generally become more expensive, and the prices of domestically-produced goods may also rise as domestic producers may rely on raw materials from abroad. Over the past two decades, the stable exchange rate of KHR against USD has contributed to low and stable inflation of around 3 percent in Cambodia. An exchange rate level should be aligned with economic fundamentals and a country’s external position, and thus neither an overvaluation nor undervaluation is desirable to a central bank as it could lead to the accumulation of imbalances in the economy, which could act as a trigger for economic crisis. Based on many countries’ experiences, the NBC is well aware of the sources of vulnerability that could form and thus regularly assesses the exchange rate fundamentals. Through those regular exercises, the current exchange rate remains appropriate and is very much aligned with economic fundamentals, but NBC remains vigilant in monitoring any emerging risks caused by the movement of the exchange rate, especially during the COVID-19 crisis.
Steps the NBC is taking in gradually de-dollarising the economy
USD and Euro are among major currencies that are largely used in international trade across the globe. To reduce the reliance on those currencies, particularly the USD, many countries started using their own currencies for bilateral trade and investment. In this sense, Cambodia also encouraged the use of riel and Chinese RMB through the banking system for trade settlement between both countries.
On top of that, NBC has implemented various policy measures to gradually promote the use of riel in the economy based on market mechanisms. So far, the use of riel has been facilitated through the development of electronic payment systems and other supporting policies. For instance, “Fast Payment”, “Retail Pay”, “Bakong” and other electronic payment systems have made the riel payments more convenient and with lower costs. The NBC has developed interoperability of standard QR code for efficient and secured domestic transactions and has promoted the use of local currency in cross-border payment transactions, such as with Thailand and Malaysia, which is also being expanded to connect with other countries in the region. Meanwhile, the NBC supports banks and financial institutions to issue corporate bonds in riel, provides liquidity in riel to banks and financial institutions through LPCO, and works closely with relevant authorities to encourage businesses to have price tags on goods and services in riel. At the same time, a number of supporting measures have been implemented, such as requiring banks and financial institutions to have at least 10 percent of their loan portfolio in riel and lowering fees on transactions or services in riel, provided by the NBC. In addition, the psychological factors that are the long-term problem in promoting the use of riel are also taken into account. For instance, NBC has raised public awareness of the importance of riel through the celebration of “Riel Day” and other campaigns that have offered the public the forum to discuss and understand the role of the national currency in the economy.
Rate of activation of commercial banking loans through low central bank interest rates
NBC has introduced a number of monetary policy tools that have to some extent the capacity to influence the market rates for loans in local currency. Among those, LPCO enables banking and financial institutions to obtain loans in riel through auctions that usually have interest rates less than the market rates. The amount of loan outstanding from LPCO has gone up significantly since it was first introduced in 2016, and nowadays, this facility continues to be actively used by banking and financial institutions. The provision of loans to banking and financial institutions at such low rates has enabled them to provide loans to customers at lower rates as well, which has contributed to increasing the proportion of KHR loans to total loans and lowering the interest rates for loans in riel provided to customers by banking and financial institutions.
Going forward, it is expected that the proportion of KHR loans in the banking system would continue to expand further. The expected increase can be attributed to the rising demand for local currency in the economy, stronger confidence and trust in Cambodia’s banking system and its currency, political and macroeconomic stability, better understanding by the public on the importance of local currency, as well as the constant efforts of the National Bank of Cambodia and other parties to promote the use of Khmer riel.
Riels in circulation now and steps taken to introduce Riel bills which directly replace the USD
Recently, 16.4 trillion Riels approximately 4 billion USD are circulating in the market. The growth of currency in circulation has increased, on average, 18 percent in the last two decades. The National Bank of Cambodia has no plan to introduce other banknotes besides the existing ones in the market. Previously, some new commemorative banknotes such as 30,000 Riels and 15,000 Riels were issued, and their amounts were limited. The 50,000 Riel bills are substituting the USD 10 bills. The 100,000 Riel bills are also attractive for a higher settlement amount. The most popular banknote, 10,000 Riel, is playing an active role to replace the small USD notes which are $1, $2, and $5. In addition, many commercial banks are using 20,000 Riel and 50,000 Riel bills to place in their ATMs. NBC has been encouraging all economic agents to use the local currencies in the market by providing attractive banknote designs with good-quality paper. Everyone could exchange the old and torn Riel banknotes at the NBC’s cashier counters so the new bills will always be in the market.
Steps the NBC is taking in gradually de-dollarising the economy
USD and Euro are among major currencies that are largely used in international trade across the globe. To reduce the reliance on those currencies, particularly the USD, many countries started using their own currencies for bilateral trade and investment. In this sense, Cambodia also encouraged the use of riel and Chinese RMB through the banking system for trade settlement between both countries.
On top of that, the NBC has implemented various policy measures to gradually promote the use of riel in the economy based on market mechanisms. So far, the use of riel has been facilitated through the development of electronic payment systems and other supporting policies. For instance, “Fast Payment”, “Retail Pay”, “Bakong” and other electronic payment systems have made the riel payments more convenient and with lower costs. The NBC has developed interoperability of standard QR code for efficient and secured domestic transactions, and has promoted the use of local currency in cross-border payment transactions, such as with Thailand and Malaysia, which is also being expanded to connect with other countries in the region. Meanwhile, the NBC supports banks and financial institutions to issue corporate bonds in riel, provides liquidity in riel to banks and financial institutions through LPCO, and works closely with relevant authorities to encourage businesses to have price tags on goods and services in riel. At the same time, a number of supporting measures have been implemented, such as requiring banks and financial institutions to have at least 10 percent of their loan portfolio in riel and lowering fees on transactions or services in riel, provided by the NBC. In addition, the psychological factors that are the long-term problem in promoting the use of riel are also taken into account. For instance, NBC has raised public awareness of the importance of riel through the celebration of “Riel Day” and other campaigns that have offered the public the forum to discuss and understand the role of the national currency in the economy.
Rate of activation of commercial banking loans through low central bank interest rates
NBC has introduced a number of monetary policy tools that have to some extent the capacity to influence the market rates for loans in local currency. Among those, LPCO enables banking and financial institutions to obtain loans in riel through auctions that usually have interest rates less than the market rates. The amount of loan outstanding from LPCO has gone up significantly since it was first introduced in 2016, and nowadays, this facility continues to be actively used by banking and financial institutions. The provision of loans to banking and financial institutions at such low rates has enabled them to provide loans to customers at lower rates as well, which has contributed to increasing the proportion of KHR loans to total loans and lowering the interest rates for loans in riel provided to customers by banking and financial institutions.
Going forward, it is expected that the proportion of KHR loans in the banking system would continue to expand further. The expected increase can be attributed to the rising demand for local currency in the economy, stronger confidence and trust in Cambodia’s banking system and its currency, political and macroeconomic stability, better understanding by the public on the importance of local currency, as well as the constant efforts of the National Bank of Cambodia and other parties to promote the use of Khmer riel.
Source: https://www.khmertimeskh.com/501044986/electronic-payment-systems-to-enhance-economic-efficiency-financial-inclusion-and-use-of-riel/