Phnom Penh (dpa) – One of the first oddities that visitors to Cambodia notice is the omnipresence of the US dollar. Be it at coffee shops, supermarkets or restaurants, most prices in Cambodia’s capital of Phnom Penh are displayed in US dollars.
Dollars seem to have replaced the local currency, the riel, which is now used only for minor transactions, like buying food at local markets. For everything else, including Cambodia’s numerous imports, there is the greenback.
Cambodia has been trying to move away from a US dollar economy and promote the use of the riel for years, but experts say a complete shift remains a long way off.
Today, 84 per cent of Cambodia’s economy is dollarized, according to the country’s central bank, Cambodia National Bank (CNB), which has been tasked with promoting the use of the local currency.
While dollarization of the economy has contributed to stable economic growth – trading in US dollars attracts foreign direct investment due to the elimination of risks linked to exchange rates – trading in dollars is nevertheless risky for Cambodia, said Neav Chanthana, the deputy governor of the CNB.
“As Cambodia rises to a lower-middle income country, high dollarization leaves Cambodia vulnerable to external shocks and can threaten hard earned economic gains,” Chanthana told dpa by e-mail.
It also hinders Cambodia’s exports, such as garments and footwear, by making them less price-competitive compared to neighbouring Thailand or Myanmar, she said.
“When the US dollar appreciates it puts Cambodia’s exports at a disadvantage relative to other exporting countries,” Chanthana added.
According to a 2015 World Bank report on dollarization, Cambodia has lost between 1 and 2 billion dollars in seigniorage – the profit the government makes when it subtracts the cost of producing and distributing a currency from its face value.
But ditching the dollar also seems a matter of national pride. Chanthana said Cambodians should feel obligated to use their own currency because “it shows national unity and identity.”
Cambodia hasn’t always used the dollar. Following its independence from France in 1953, the authorities established the first central bank, and the riel became the national currency.
That came to an abrupt end in 1975, with the arrival of the Khmer Rouge, which abolished property rights and banned the use of money.
In 1980, following the fall of the Khmer Rouge, the riel made a comeback. This attempt at monetary sovereignty was again curtailed with the arrival of the United Nations Transitional Authority in Cambodia (UNTAC), the UN peacekeeping mission tasked with organizing the 1993 elections.
According to Chanthana, the 2 billion dollars that UNTAC spent in Cambodia, coupled with the country’s limited banking and money printing capacity, have sealed the unfortunate fate of the riel.
“There were no choices but to accept USD transactions in the system,” she said by email.
Asked how the CNB is attempting to promote the use of the riel, Chantana said the strategy is to encourage its use rather than to “force the market to stop using USD.”
Ngeth Chou, a senior consultant at Emerging Markets Consulting (EMC), said the riel will triumph only if the authorities run a well-researched public awareness and education campaign.
“We need a lot of public education,” he told dpa.
Additionally, Chou said, Cambodia needs a functioning institutional apparatus capable of enforcing regulations that are already in place. That doesn’t seem to be the case yet, he said.
In July 2017, Cambodian authorities passed a decree compelling businesses to display their prices in riel. But according to local media reports, the order was largely ignored.
Regardless of the challenges, Chou remains optimistic.
“If there are no proper institutions and enforcement mechanisms, and no public education, it might take 10 years,” he said.
Not all experts are this sanguine. Ear Sophal, author of “Aid Dependence in Cambodia: How Foreign Assistance Undermines Democracy,” described shifting to a riel economy as “a gargantuan task.”
He identified lack of public trust in the local currency as the key obstacle.
“People trust the riel about as much as they trust their leaders, which is to say, not a lot,” he told dpa.
“Everyone has a bitter taste as to the last social engineering experiment where the Khmer Rouge banned money … Everyone knows that the riel will become worthless before the dollar becomes worthless.”