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Riel stability key to ensuring confidence

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A large stack of Riels being counted at a bank in central Phnom Penh. KT/ Siv Channa

Cambodia has become a dollarized economy since the early 1990s owing to a massive influx of foreign currency into the economy through the United Nations Transitional Authority in Cambodia (UNTAC) operation, while people also lost confidence in Khmer riel due to the civil war combined with macroeconomic imbalances, which caused a sharp depreciation of KHR against USD during that period. When the peace reigned over the country by the end of 1998, the Royal Government of Cambodia (RGC) was able to fully concentrate on economic development, meanwhile the National Bank of Cambodia (NBC) also started to fulfill its mission as the monetary authority more effectively.

The stability of riel is perceived as a key ingredient by the NBC to bring back people’s confidence in the KHR usage. The NBC decided thus to adopt the managed floating exchange rate regime by intervening in the foreign exchange market to maintain the exchange rate stability. Note that in the last two decades, the NBC has contributed to stabilize exchange rate at around 4,050 riels/usd, meanwhile the inflation rate was also maintained at below 4%. The riel stability also contributes to preserve the purchasing power of people, especially in the rural areas where they mostly earn in KHR, and this in turn led to a gradual increase of the KHR usage in the kingdom, both the currency in circulation and the bank deposits in KHR, which increased up to 13 trillion and 9.5 trillion riel in December 2019, respectively. Furthermore, the riel stability also partly boosted the investors’ confidence to invest in Cambodia, as the exchange rate risk is low, and supported the kingdom’s economic development that has recorded an average economic growth of 8% between 1998 and 2019, known as one of the fastest growing country in the world. To continue ensuring confidence of public in the usage of KHR, riel stability is still a necessary condition for the short and medium terms.

 

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