The National Bank of Cambodia, concerned that people are losing trust in the national currency and buying too many dollars too quickly, planned to auction off $90,000 between Monday and Wednesday, according to bank Director General Tal Nai Im.
The measure was not wholly unexpected, as the bank’s governor, Chea Chanto, issued a statement Friday calling for Cambodians to maintain confidence in the riel, as fiscal flight to the dollar would lead to inflation.
After enjoying nearly five years of relative stability at about 3,950 riel to the dollar, Saturday’s rate dropped to 4,110 riel to the dollar. By Monday it had recovered slightly to 4,060 against the dollar.
Tal Nai Im on Monday credited worries over the upcoming election for the mass exchange of Cambodian currency to dollars. Growing demand for the dollar has strengthened its value against the riel. Tal Nai Im said the bank’s strategy is to lessen that demand—and the dollar’s value—by making more dollars available.
Tal Nai Im said the national bank will keep selling dollars until the riel settles somewhere near 4,000 to the dollar, although the bank hasn’t decided yet which side of that mark would be preferable.
“We will stop selling dollars when the riel stabilizes against the dollar,” she said.
Ly Huor, one of Phnom Penh’s biggest money changers, said Monday she felt sure the national bank would restore the riel’s former value. “It was a huge change what happened late last week,” she said. “The riel situation looks like a boat in the middle of a river…rocking back and forth.”
Over the past two weeks she has seen a flood of riel coming into the capital from the provinces and leaving as dollars, Ly Huor said. She voiced confidence that the rate would return to 4,000 riel against the dollar between June 5 and June 20, if the national bank sells enough riel and the government collects taxes it is owed by companies.
Ly Huor dismissed the theory that insecurities surrounding the elections had provoked the rush on dollars. She blamed severe acute respiratory syndrome for strangling the flow of tourist dollars into Cambodia. “I’m a market vendor making too little profit today. You may not believe me if I say…I make 100 riel from [changing] $100,” she said.
Khin Song, the deputy director of the General Statistics Department at the Ministry of Planning, shared observers’ concerns.
“I worry when the exchange rate is not stable. In general, if riels are cheap, goods will increase in price. And when it goes up, the price never drops back down,” he said.
But Khin Song added that the volatility should pass, and people should not fear an increase in the costs of goods.
A government economic analyst who declined to be named partially blamed the riel’s slump on political parties flooding the markets with riel in exchange for gifts to be dispensed to potential voters during electioneering. He also blamed the drop in tourism, slow investment and worries about how the country will fare after the elections.
But, he added, inflation will not affect people’s lives seriously. “We are only a small economy,” he said.