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The Better Cambodia > Blog > News > NBC Urges Widespread Use of Riel to Strengthen Cambodia’s Economy
News

NBC Urges Widespread Use of Riel to Strengthen Cambodia’s Economy

Last updated: November 26, 2024 2:15 am
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The National Bank of Cambodia (NBC) has called on stakeholders, particularly the public, to adopt the Cambodian Riel (KHR) more widely to enhance macroeconomic policy management and support sustainable economic development.

Contents
Advantages of Using RielStability of the RielImpact of Dollarization on Inflation

Speaking at a program promoting the Riel, Bakong System, and KHQR System in Banteay Meanchey Province, NBC Deputy Governor Yim Leat highlighted the growing use of Riel in the economy, thanks to collaborative efforts by various stakeholders. However, he noted that dollarization remains high, limiting the Riel’s influence in the financial system.

“Expanding the use of Riel is crucial to reduce the impact of external factors on Cambodia’s price levels, strengthen monetary policy, stabilize prices, and foster economic growth,” Leat emphasized.

He also pointed out that greater reliance on the Riel could boost international reserves, enhancing confidence among investors and the public in Cambodia’s economic and financial stability.

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Advantages of Using Riel

The NBC has reiterated that an increased presence of Riel in the economy improves monetary policy effectiveness. By maintaining control over the money supply, the central bank can better manage production, employment, and economic development.

Dollarization, while providing some stability, makes Cambodia vulnerable to external economic shocks. If the Riel were the predominant currency, the central bank could act as a lender of last resort, providing more robust responses to financial crises. Additionally, greater use of the Riel allows the government to benefit from seigniorage—revenue generated from issuing currency. It also eliminates transaction costs associated with currency exchange in everyday transactions.

A 2023 study conducted by NBC in collaboration with the United Nations Development Programme (UNDP) found that factory workers in Cambodia’s provinces spend up to 92% of their daily expenses in Riel, particularly on necessities such as accommodation, utilities, food, and healthcare. Similarly, urban workers use Riel for 82% of their expenses. Leat underscored that transactions in a single currency, such as the Riel, simplify exchanges by eliminating concerns over fluctuating exchange rates.

Stability of the Riel

Leat emphasized the Riel’s stability over the past two decades, citing its consistent exchange rate of between 4,000 and 4,200 Riel per US dollar. “This stability reflects the strength and resilience of the Riel,” he said. However, the US dollar remains dominant in urban centers like Phnom Penh and provincial towns.

To further promote the Riel, Leat urged ministries, institutions, businesses, and the general public to prioritize its use. This includes making payments in Riel, displaying price tags in Riel, saving in Riel, and creating incentives for its use nationwide.

Impact of Dollarization on Inflation

Hong Vannak, an economist at the Royal Academy of Cambodia, explained that dollarization exacerbates inflationary pressures, as exchange rate fluctuations directly impact the cost of goods and services. “When the Riel depreciates, prices rise immediately,” he said. Maintaining the stability of the Riel exchange rate has significantly contributed to controlling inflation, alongside lower fuel and food prices.

The NBC’s continued efforts to promote the Riel aim to fortify Cambodia’s economic independence and enhance the nation’s financial resilience in the long term.


Source: Khmer Times

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