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Riel use set to increase, but the dollar still dominates

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Prices are displayed in Cambodian riel at Korean franchise, Tous Les Jours, on Sihanouk Boulevard in Chamkarmon district’s Boeung Keng Kang I commune in the capital. Hong Menea

Riel use set to increase, but the dollar still dominates

The use of the riel in the Cambodian economy is set to see a significant increase as more use it for large transactions, but its market share remains dwarfed by the dollar, according to a survey by the National Bank of Cambodia (NBC) and the Japan International Cooperation Agency (Jica).

While riel use is set to increase, the use of the US dollar in the local economy has increased at similar rates, resulting in the riel’s market share of the Kingdom’s GDP remaining around 10 per cent.

According to the NBC-Jica riel survey – which collected data by observing the currency’s use among 2,264 households and 856 enterprises from 2014 to 2017 – the riel is mainly used by people in rural areas and has seen a gradual decline in the Kingdom’s business firms.

Financial institutions, in particular commercial banks, continue to offer loans in US dollars despite the increasing trend of micro-financial institution loans in riel.

Currency imbalance

Speaking during the closing remarks of a seminar on Tuesday, NBC deputy governor Neav Chanthana said the preferred currency for borrowing among households and firms remains the US dollar. Banks and microfinance deposit-taking institutions (MDIs) also grant loans largely in the US currency.

“There is room for promoting riel loans by encouraging microfinance institutions [MFIs] to loan out in Cambodian riel. Strong participation from banks and MDIs in granting loans in Cambodian riel is even more indispensable,” Chanthana said.

She said there is evidence of a currency mismatch as the share of foreign currency in household income is higher than that in household expenditures. She added that the share of foreign currency in firms’ revenues is lower than that in firms’ expenditures.

According to Chanthana, higher income households earned more foreign currency than lower income ones, while larger enterprises show higher shares of foreign currency in both revenues and expenditures than smaller ones.

Daiju Aiba, research fellow at Japanese development agency Jica, on Tuesday said financial institutions are key players in the promotion of the use of local currency in the Kingdom.

He added that the central bank should carefully monitor the extent of regional dollarisation by collecting data on loans and deposits at the regional level.

“Monitoring is also necessary to detect the negative side-effects of policy measures and to reduce them even if an unanticipated situation happens,” he said.

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