Dollar or Riel? New Bourse’s Unresolved Dilemma

A decision on which currency to use in Cambodia’s up and coming stock exchange is currently at the heart of discussions being held be­tween the government and its principal stakeholders.

But a common stance on the mat­­ter appears to be eluding those in the government pushing for the riel’s promotion and the stock market’s operators vying for the higher security option of the US dollar.

“We would like to use the local currency,” said Tal Nay Im, director-general of the National Bank of Cambodia. “The main reason is to pro­mote the use of the local currency. It is part of the de-dollarization,” she said yesterday.

Ms Nay Im declined to discuss which currency the government would opt for and referred questions to Ming Bankosal, director-general of the Securities and Ex­change Commission of Cam­bodia, the new market regulator.

Mr Bankosal said that no decision had been made on the currency matter, but an assessment was under way by the government and all other partners with a tentative decision date set for the middle of next month.

While the stock market presents regulators with an opportunity to implement its policy on de-dollarization-a process that would provide regulators with monetary tools like setting prime lending rates-stock market operators and private investors are adamant that the economy is simply not ready for riel to increase its role in the economy so suddenly.

“I think foreign investors would be very attracted to a US-dollar-denominated market,” said Douglas Clayton, CEO and managing partner for the private equity firm Leopard Capital. “I also think many businesses here make their commercial decisions in US dollars. It’s an onerous decision to switch everything to riel.”

The debate over which currency to use, he said, is not so much a matter of confidence but rather that the riel is not freely traded and thus mapping out its future value would be too challenging and risky for investors.

“So long as 90 percent of commercial transactions are in dollars it’s appropriate to use dollars in the country,” he said.

A sensible way to administer control of the riel’s role in the stock market would be to gage how much riel supply there is in the economy and alter its use within the stock market accordingly.

“The question is, is now the time to de-dollarize the economy?” Mr Clayton asked. “I wouldn’t like to see the stock market leading way ahead of the rest of the economy.”

Kang Chandararot, executive director for the Cambodia Institute of Development Study, said a strategy seeking the best of both worlds-government shares being held in riel and private shares in dollars-would be best suited to the current climate.

“For the government, if they have to use dollars, this means that they must use the limited foreign reserves and/or find more foreign reserves. Their current operations and public finances are in riel,” he wrote in an e-mail yesterday.

“This will create pressure on the government which will create pressure on the domestic currency and price level,” he added.

Mr Chandararot said private shares being held in dollars would attract more investment with confidence in the riel being low and long-term macro-economic stability still uncertain.

“If private shares are required to be in riel (for the sake of de-dollarization policy), this will create high pressure for monetary authorities to stabilize the exchange rate,” he said.

One banking executive, whose company has applied for a securities brokerage license, said while most firms would be happy operating in riel, the market’s ability to absorb such a significant amount of local currency at once was an unknown factor.

“You must look at the market as a whole to see if it should be USD [American dollars] or Khmer riel,” he said, speaking on the condition of anonymity, due to his firm’s pending license application.

In the event of a riel-based stock market the NBC will be forced to print large amounts of riel, which could result in a hike in inflation, he said.

Moreover, operating the stock market in both currencies could open up the door to arbitrage-whereby traders will try to make quick profits by exchanging one currency for another in the event of a slight fluctuation in value.

This is “not healthy for the stock market’s organization,” he said. “In the early stage of the market’s development, people should be looking how to develop the stock market safely.”

In-pyo Lee, the Phnom Penh-based project manager for the Korea Exchange, which controls 45 percent of the Cambodian exchange alongside the government, confirmed that discussions on the matter were underway with the government.

“We are still discussing right now,” he said. “The Cambodian government, they are trying to force us to use riel but in reality the dollar is better.”

Though Mr Lee said Cambodia’s goal to de-dollarize was positive, the realization of this is rather “a question of timing.”

Han Kyung-tae, chief representative of Seoul-based Tong Yang Securities Company, said he had heard the government was in the process of considering a dual currency system.

“But basically I think it should be in US dollars first, then they will see if it is feasible or not to use riel,” he said. “From an investor’s point of view, if its riel I think it is going to be very difficult for them to make investor decisions because of the currency risk.”


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