Cambodia Investment Review
As the Kingdom of Cambodia commemorates the 44th anniversary of the riel’s reintroduction, the National Bank of Cambodia (NBC) has introduced a new mandate for dual currency bank accounts for both locals and foreigners alike. This move reflects the NBC’s ongoing commitment to enhancing the status of its national currency in the financial ecosystem. With this backdrop, we examine whether the country is prepared for a significant shift towards the riel.
The NBC’s directive, dated March 19, 2024, requires financial entities to establish and operate accounts in the local currency. Under the guidelines, financial institutions are obliged to provide options for payment transactions in Khmer riel (KHR) and are required to report compliance progress to the NBC on a monthly basis. These conditions are set with the aim of facilitating an inclusive environment for using the KHR for payments and savings. While the mandate does not stipulate mandatory salaries – this may be an eventual move inline with the 2019 requirement for business owners to provide the total amounts, in tax invoices that they issue to customers, in Khmer Riel.
In the wake of this policy, the Annual Report 2023 and the 2024 Target by the NBC indicates that the riel faced devaluation pressures last year due to a decline in the USD inflow and an uptick in government expenditure. The NBC’s intervention through foreign exchange market activities and monetary policy tools has been pivotal in alleviating the downward trend of the riel.
Banking System A Cornerstone For Ongoing Financial Stability
Chea Serey, Governor of the NBC, in a recent address, underscored the resilience of the Cambodian banking system amidst global economic disruptions and uncertainties, including geopolitical tensions and climate change concerns. She pointed out the stability of the Cambodian banking system as a cornerstone for ongoing financial stability and economic stimulation within the country.
Read More: Opinion – Could Bakong Challenge the US Dollar’s Dominance in Cambodia’s Future?
The adoption of digital financial services is a prominent feature of Cambodia’s evolving financial landscape. In 2023, the volume of digital financial transactions in Cambodia exceeded $492 billion, a trend that signifies the country’s shift toward a cashless society. The adoption of digital payment systems, like the KHQR code and the Cambodian Shared Switch (CSS), facilitates seamless transactions while reducing reliance on physical cash, thereby fostering a more secure and convenient financial environment.
At the forefront of this digital wave is the Bakong system, a flagship digital payment platform developed under the auspices of the NBC. With 27.6 million accounts and acceptance by 2.9 million merchants, Bakong is indicative of a behavioral change in how Cambodians engage in financial transactions. Its ability to integrate seamlessly with existing banking and payment systems has played a key role in promoting the use of digital financial services.
In parallel, the stance of the investment community on the riel’s resurgence is cautiously optimistic. Business leaders acknowledge the role of a dollarized economy in attracting foreign investment due to the perceived stability and global trust in the U.S. dollar. The riel’s promotion is seen as a strategic step toward financial sovereignty, albeit balanced by the practical considerations of maintaining investor confidence.
Stability That Dollarization Has Brought To Cambodia’s Economy
Investors highlight the comparative stability that dollarization has brought to Cambodia’s economy, especially when contrasted with the currency fluctuations experienced by neighboring countries. For instance, significant currency devaluations in Laos, Vietnam, and Indonesia have caused notable capital losses for investors in these markets. These cautionary tales emphasize the need for careful policy implementation to ensure economic stability and investor confidence during Cambodia’s currency transition.
The local banking sector is actively participating in the NBC’s riel promotion efforts. For instance, ABA Bank – the largest commercial bank in Cambodia – has streamlined the process for opening KHR accounts, offering instant account openings through electronic Know Your Customer (eKYC) technology. This convenience is complemented by the bank’s deployment of ATMs that prioritize the riel over the USD, a practical measure to encourage the use of the local currency.
The riel’s promotion and the shift towards digitalization in financial transactions are central to the NBC’s long-term vision. The development and enhancement of monetary policy instruments and markets are pivotal to these efforts, as is the broader goal of improving KHR usage among the populace.
