Currency conundrum is of crucial importance to Cambodia’s planned stock market
In the presence of economists, historians and students, officials from the National Bank of Cambodia yesterday celebrated the 30th anniversary of the reintroduction of Cambodia’s national currency.
After achieving independence from France in 1953, Cambodia established its own central bank and issued the riel as its new national currency. However, the Khmer Rouge in 1975 dynamited the central bank and abolished bank notes.
It was not until March 20, 1980, under the People’s Republic of Kampuchea, that the riel was again put into circulation. Since then the question of confidence in the national currency, and above all, the de-dollarizing of the economy have been crucial issues for regulators.
In the past decade of peace and economic growth, the humble riel has struggled to gain a foothold in the economy with almost all national savings and bank deposits still in US dollars.
While precise information is scant, it is widely assumed that 90 percent of the bank notes in circulation are denominated in foreign currency. In 2008, 97.8 percent of all bank deposits were in US dollars, Finance Ministry Secretary-General Hang Chuon Naron wrote in an essay.
Cambodia’s official policy is to replace the supply of dollars with riel on day. However, progress has been noticeably lacking to achieve the goal of a single national currency.
Despite the confidence the dollar injects into the Cambodian economy, it also takes away monetary tools that most sovereign nations take for granted, like setting key interest rates.
The problems that arise from using the US dollar in Cambodia were starkly highlighted during the course of the economic crisis.
Cambodia’s garment sector saw a 19 percent decline in exports last year compared to 2008, losing market share to neighboring countries such as Vietnam and Bangladesh.
Vietnam was able to increase market share, partly by devaluing its national currency, the dong, which made Vietnamese export prices more attractive to foreign buyers.
Cambodia, awash in dollars, was not able to carry out such a maneuver. A de-dollarized economy could provide the government with heightened leverage to act against fluctuations in the value of the dollar internationally. It would also make goods produced domestically more competitive on local markets as importing goods would require currency exchanges.
Despite the general consensus among investors and those in the government that Cambodia must de-dollarize, critics say there is still an issue of confidence in the riel.
“It is not a matter of time but a question of the political will,” said SRP lawmaker Tioulong Saumura, former deputy governor of the National Bank of Cambodia. “The use of the US currency instead of riel reflects that investors and people have no trust and confidence in those who rule,” she said.
“Currency is like a mirror or measurement to figure out the level of trust of the people in the rulers.”
Building confidence in the currency also requires that Cambodia first crack down on corruption and ensures investors they are guaranteed an independent judiciary, Ms Saumura added.
In Channy, CEO of Acleda Bank, said he was personally confident in the stability of the riel but that public trust may be uncertain.
“We cannot force people to trust the riel,” Mr Channy said. “We must do something to make sure the local currency does not fluctuate too much so that the public trust it,” he said, noting that the NBC had already started making efforts to ensure more riel are circulated in the economy.
Still, only 12 percent of Acleda bank’s deposits are in riel.
“We have to start to move toward de-dollarization now, little by little,” said Sung Bonna, president and CEO of Bonna Realty Group.
Cambodians “have to change their lifestyle,” Mr Bonna said, but also noted that all of his firm’s property transactions are carried out in dollars.
The debate concerning de-dollarization is about to take on a central importance with the opening later this year of the country’s first stock market.
Which currency should be used for buying stock?
“Do you do it in riel or do you do it in dollars?” asked Steven Higgins, CEO of ANZ Royal Bank. “It’s a massive, massive decision.”
“If they do it in Khmer riel it’s going to stop most companies from lifting. Most companies have financial statements in US dollars. It will mean a currency miss match,” Mr Higgins said.
But, Mr Higgins said, going down the path of operating the stock market in dollars could represent a missed opportunity to de-dollarizing the economy.
“There is no simple road here,” he added.
Hong Sok Hour, CEO of the Cambodia Securities Exchange, said the stock exchange debate was currently a major discussion among officials from the NBC and the Securities and Exchange Commission of Cambodia, who will regulate the stock market.
“There has been some discussion on a technical level already. Now it is up to our management to decide to use which currency or a mix of both,” Mr Sok Hour said.
If the government opts for riel, Cambodia will have much more leverage on monetary policy and control over how much money is actually circulating within the economy. But use the riel and there is no guarantees “that foreign companies will come” as concerns over liquidity in the system will exist, Mr Sok Hour said.
He added, however, that there was a train of thought that operating in riel may make investors think more carefully about listing in Cambodia and, therefore, encourage a less speculative market.
For Mr Higgins and others, de-dollarizing is a must.
“But the question is how to do it,” he said.
