Cambodia: Riel circulation on the rise in rural economy
In the post-Pol Pot regime (1975-1979), the circulation of riel has increased remarkably, especially in the rural economy as the government has unleashed and implemented necessary measures to promote the usage of riel, a top official of the National Bank of Cambodia (NBC) said.
The measures taken by the government include payment of civil servants’ salaries, utilities and taxes in riel, and proclamation on requiring all vendors to label prices of products and services in riel, besides NBC in the later stages developed the electronic payment to make usage of riel safer, more convenient and more efficiently, the official added.
Chea Serey, Assistant Governor and Director General of Central Banking of NBC, said that payment system can be used a tool of campaign to promote the use of riel in provinces. Among the payment systems, Bakong, a payment system employing Blockchain, the latest technology, was officially released for use in 2020. “This is to respond to a challenge that some people in the public have raised, saying that there are too many digits of riel to count like confusing the number of zero as there are many ‘zeros’ when buying a phone or packaging a suitcase of cash to pay for buying a car, or the banknotes that are old or dirty,” she said.
“So, we need to develop a digital payment. When people want to make payment in riel, they just scan by phone and then the cash will run automatically without counting the number of pieces or the digits of zero. So, it is easy,” Serey said, adding, that NBC also has developed the KHQR standard to enhance efficiency and safety of the domestic payment transactions and connectivity with some countries in the Association of Southeast Asian Nations (ASEAN) such as Thailand and Malaysia to promote riel usage in the cross-border payment.
“At this point, previously, people who use QR of ABA, for example, can only scan QR of ABA to make payment or transfer is possible only by bank accounts in the same banks. Now, people can transfer money easily to another person who has bank account with any other bank that is a member of the National Bank of Cambodia. Also, they can scan QR. For example, when we go to buy coffee, we usually see, let’s say, five or ten QRs on a counter, but now the merchant just need only one to make payment,” she said.
She pointed out that old or torn Riel banknotes are regularly collected and exchanged for the new ones free of charge. The 50,000 riel banknote was awarded bronze medal for quality and appearance from the International Monetary Institute based in United Kingdom and the 15,000 riel banknote was awarded as the best new banknote in the Asia Pacific in 2019 from Reconnaissance International, who also based in the United Kingdom and supports the modern and safe technology in printing the banknotes.
NBC also has supported the government in issuing government bonds in riel and banking and financial institutions in issuing corporate bonds in riel and requires them to have loan in riel at least 10 percent of the total loans, while NBC also supplies riel to banking and financial institutions who are short in local currency and based on their necessary and actual needs to reduce lending rate in riel in the market.
Serey pointed out that all of these measures have contributed to the payment and savings in riel everywhere of the country. For over the last two decades, riel in the circulation has risen by 18 percent, 30 percent for deposit in riel and 40 percent for loan in riel on average per year.
The result of the survey of NBC, in cooperation with Japan International Cooperation Agency (JICA) in 2017 shows that riel banknotes have been more trusted and used especially in the daily expenses, and in the rural areas. Thus, riel has played a major role in the standard of living—income, expenses and savings.
Based on the survey, 79 percent of the population in Battambang Province claimed that at least 80 percent of the daily expenses are made in riel, while the operations revenue and expenses in riel of banking and financial institutions in the province have also been increased remarkably—281 percent in the first half of this year compared to the same period of five years ago. It has grown higher than the US dollar—61 percent rise.
Over the last 42 years, riel has actively contributed to rebuild and restore the sovereignty, economy and society through its functions as unit of account, medium of payment or exchange and store of value; however, riel circulation in Cambodia’s economy has been represented by about 20 percent, while the US dollar has dominated approximately 80 percent. “If we use the foreign currency a lot, we would lose our ownership.”
After January 7, 1979, the government has rebuilt society and economy from its empty hands in all sectors. One of the priorities was to reprint riel banknotes as the medium of exchange in the economy and then riel was officially launched for recirculation on March 20, 1980. “The building of the national bank was destroyed by bombs and the banknotes in the warehouse were collected and burned to cook rice,” said Serey.
Serey went on to add that before the banknotes were printed, people exercised barter deal that was high costly in terms transactions as it was very hard for them to reach a deal of exchange between a commodity and another or an object with another one.
“During the war period, people did not have cash to spend. Instead, they used rice, gold, watches, jewelries so on and so forth to exchange for food or medicines … using this method required people to face high transaction costs. For example, I had rice and I wanted white cloth, but actually the persons who had cloth did not need rice, instead they needed an axe. And then, the person who had rice needed to find another person who had an axe. Even though he met a person having an axe, but that person did not need rice but fish,” she explained.
“If the person having rice met a person having fish and need rice, then they could reach a deal, and then he could take the fish to exchange for an axe with the person who had the axe. Then, he continues to exchange the axe with cloth that he wanted. So, this transaction could take a day for that person to get a piece of cloth,” Serey explained, adding, the barter deal was not economically efficient.
“Now, we have banknotes to buy things we want or need without going around in the whole village to ask who needs what as the banknotes are accepted by everyone and we just give the money and then we would get the things need. This is the significance of using the local currency,” she pointed out.
However, riel had faced many challenges before it was trusted. Firstly, in 1980s, general price of goods increased dramatically, which means value of riel decreased. Secondly, the delay of the civil war until the end of 1998, which made riel was not used in some areas, while the trust on it was fragile. Thirdly, the US dollar flew hugely into Cambodia’s economy in early 1990s.
“That’s why people and private sector have had habit of using US dollar even now,” Serey said. However, she said that the government and the National Bank of Cambodia have released policies to promote riel usage, especially since early 2000s after the macroeconomy was well stabilised. Since then, the flows of riel currency in the circulation has increased steadily.