Logo of Phnom Penh Post newspaper Phnom Penh Post - Central bank to shun small US banknotes

Central bank to shun small US banknotes

Content image - Phnom Penh Post
NBC is considering not accepting smaller denominated US dollar banknotes – $1, $2 and $5 – from banks and microfinance institutions (MFIs). Hong Menea

Central bank to shun small US banknotes

The National Bank of Cambodia (NBC) is considering not accepting smaller denominated US dollar banknotes – $1, $2 and $5 – from banks and microfinance institutions (MFIs) which it said are flooding its stockpile as the demand for those notes is low.

While some banking insiders welcomed the move as an effort to enhance monetary policy by promoting local currency, the NBC stressed that the measure is not aimed at stopping the banknotes’ circulation in the market.

“The NBC is flooded with US banknotes of $1, $2 and $5, which means there is little demand.

“We will give banks [and MFIs] three months starting June 1 until August 31 to take all those notes to the NBC for transport abroad without a service fee. Financial institutions will be charged if they take the notes to the NBC after the deadline,” it said in a statement.

The central bank made the announcement during a meeting with banks and MFIs on Thursday to study the issue and collect input about not accepting the smaller US banknotes.

“The NBC will continue to discuss the issue with banks and financial institutions as a step to set a suitable timeframe for completely not accepting these banknotes,” it said.

PPCBank president Shin Chang-moo told The Post on Thursday that the move will contribute to the promotion of local currency.

“I expect, in the longer term, the use of KHR [Khmer riel] will increase to a great extent. We are already observing equivalent KHR notes quickly replacing the $1 and $5 notes, which are usually old and in a worn condition, often creating disputes about acceptance.

“I believe that NBC’s new guideline will accelerate the process,” he said.

Stephen Higgins, a managing partner at Mekong Strategic Partners, agreed. He said the NBC’s goal is to promote the local currency and it is a significant step to encouraging people to use it.

“This is a sensible move by the NBC to support its goal of promoting the riel. It will essentially result in a smaller influx of quality USD notes coming into the country so the notes you see circulating will be older and eventually rare.

“People will start to prefer a nice crisp KHR20,000 note over an old $5 note. It doesn’t legally stop banks and businesses from accepting those notes and giving them back to customers, but it will push them towards preferring cleaner KHR notes.

“The US dollar is legal tender in the US. There is absolutely no legal requirement for Cambodia to treat it as legal tender, so the NBC is entirely within its right to do this,” Higgins said.

The Centre for Policy Studies (CPS) director Chan Sophal said the NBC’s move is part of the de-dollarisation goal.

“There is basically no sense in keeping lots of dollar notes at the expense of monetary policy which can be used at a time of crisis like now.

“As the Cambodian economy gets bigger, the loss of monetary instruments to effect the economy becomes quite costly.

“De-dollarisation should not be done overnight as an autonomous monetary policy has to match the central bank’s competency. But it has to start with some practical steps,” he said.

According to NBC’s 2019 annual report, the share of riel in circulation in the Kingdom grew by about 33 per cent year-on-year by last year’s end as deposits in riel increased by 37 per cent.

The report noted a steady rise in demand for the local currency, with the dollar deposit ratio dropping to 82.9 per cent last year from 2018’s 84.8 per cent.

Last year, the exchange rate was relatively stable, with an average of 4,065 riel per greenback compared to 4,051 riel in 2018. The context of the value of the riel has always been subject to slight fluctuations, especially the increase in the demand for taxes paid in riel, NBC said.

Watch video:

MOST VIEWED

  • Historic Battambang town bans billboards

    The Battambang town administration informed all house and business owners in Svay Por commune to remove all billboards by August 1 as it is preparing to submit the town to UNESCO for inclusion on its historical cultural heritage list. Its July 25 notice said all signage was

  • All foreigners' accommodations to be inspected: Sar Kheng

    The Ministry of Interior is undertaking a serious effort to inspect all the accommodations of foreigners in Cambodia – except diplomats – in order to find and identify human traffickers. Minister Sar Kheng said this would include inspections on the homes of foreigners employed by businesses, private

  • Ice cream, noodles flagged over carcinogen

    The General Department of Customs and Excise of Cambodia (GDCE) has identified three types of instant noodles and ice cream trademarks originating from Thailand, Vietnam and France that are suspected to contain ethylene oxide, which poses a cancer risk to consumers. The general department has

  • Exclusive interview with Josep Borrell Fontelles, High Representative of the EU

    CAMBODIA is hosting the 55th ASEAN Foreign Ministers’ Meeting (AMM) and Related Meetings this week with top officials from the US, China, and Russia and other countries in the region slated to attend and to meet with face-to-face with their counterparts on the sidelines. In

  • Rise in Thai air routes to Siem Reap fuels travel hopes

    Local tourism industry players are eager for regional airline Bangkok Airways Pcl’s resumption of direct flight services between the Thai capital and Siem Reap town on August 1 – home of Cambodia’s awe-inspiring Angkor Archaeological Park – which is expected to boost the growth rate of

  • ASEAN Foreign Ministers’ meet commences, Taiwan issue possibly on table

    The 55th ASEAN Foreign Ministers’ Meeting (AMM) and related meetings hosted by Cambodia kicks off in Phnom Penh on August 3, with progress, challenges, and the way forward for the ASEAN Community-building on the table. Issues on Taiwan, sparked by the visit of US House Speaker