The national currency represents the monetary sovereignty and the strength of a nation. In order to achieve long term, sustainable and inclusive growth, Cambodia needs to be more independent from foreign currencies to exert greater control over its monetary and economic policy. Recognizing the importance of the local currency to achieve sustainable economic growth, the Royal Government has implemented a strategy to promote the use the local currency through its Rectangular Strategy and is Financial Sector Development Strategy.
These strategies alone are not enough. The power to reshape the monetary landscape and move towards monetary independence depends on all Cambodian citizens. All Cambodians can work together to help achieve greater monetary severity by using the Riel more in our everyday lives; from obtaining loans in riel, to purchasing groceries at the market, to investing in your retirement. Every riel that is in the marketplace strengthens our economy and help forge a stronger and more sustainable economic growth in the future.
Here is why the riel matters to all of us.
1). Enhance national pride and solidarity
Every country has its own currency. It represents the collective identity of a nation. The very existence of a national currency is a tremendous source of pride for all citizens. For Cambodians, it enables citizens to recognize its own historical figure (such as His Majesty the King) or cultural monuments (different temples appearing on the banknotes). Through our national currency we reinforce the notion of solidarity and a sense of belonging that we are part of one community, one nation.
2). Promote price stability
In theory, price stability is managed by adjusting money supply in the economy. As with any goods, an over-supply of money in circulation would diminish its value, leading to inflation. Similarly, an under-supply of money in circulation would increase its value, leading to deflation. To maintain price stability, the NBC must control money supply, by either absorbing money from the market or injecting it back into the market.
3). Reduce transaction costs
Using one national currency in all domestic economic transactions would help substantially reduce the costs for both buyers and sellers. In addition, it could facilitate and stimulate more transactions, which could be done faster and more efficiently as both sides won’t have to encounter difficulties related to price and exchange rate differences.
4). Promote trade
Cambodia, currently, relies heavily on exports and tourism for economic growth. In 2014, 61 percent of Cambodia’s GDP came from these sectors. If Cambodia were to use the riel alone, the central bank further promote exports by increasing price competitiveness through currency devaluation. Devaluation makes our goods cheaper on the international market, thereby enabling the country to increase exports. The power of devaluation a currency lays with the central bank in consultation with the government and relevant policymakers.
5). Increase investment & job creation
To promote domestic investment and job creation, many central banks, such as the U.S Federal Reserve, adjust the central bank policy rate. The level of policy rate, set by the central bank, influences the banks’ cost of funds and as a result the interest rate at which banks charge from households and investors.
This only works when everyone in the country uses the national currency. In the context of Cambodia, an overwhelming 90 percent of bank deposits and loans are in U.S. dollars. However, the NBC can only lend to banks in Khmer riels. This means that any policy rate the NBC sets would not affect banks’ cost of funds. This is a significant disadvantage for Cambodia’s households and investors who are now facing high funding costs because the central bank is not able to influence the lending rate.
6). Promote infrastructure & social welfare
Greater use of the local currency can allow the government to better manage its budget to meet the needs of investments in infrastructure such as roads, bridges, schools, hospitals and other programs and social welfare. Promoting the use of riel would play an important part in enhancing the government budget and reduce this fiscal restraint.
7). Promote financial inclusion
According to the World Bank studies, there is a strong correlation between a country’s economic development and its financial sector development. Financial sector development is not only important for banking industry but also implies financial inclusion where people in the country have access to formal and affordable financial services. In Cambodia, around 51 percent of the adult population has access to formal financial services (payments, credits and deposits).
8). Accumulate foreign reserves
In a country where the national currency is exclusively used in the economy, foreign currencies that flow into the country must be converted into the national currency before conducting any domestic transactions. The role of the central bank is to absorb those foreign currencies in exchange for its national currency. If the riel where the only currency used in the economy, Cambodia could substantially increase its foreign reserve by accumulating every year the surplus of net inflows of foreign currencies to Cambodia.
9). Gain seigniorage
Seigniorage is the difference between the face value of money and the cost to produce it. For example, a 10,000 riel banknote cost the NBC 300 riel to produce, but once the banknote is issued to the public it can purchase goods up to 10,000 riels in value, thus the NBC obtains 9,700 riels as seigniorage.
10). Prevent counterfeiting
As cash based economy with wide use of the U.S. currency, Cambodia is an easy target to attract U.S. dollar counterfeiters because the general population and relevant authorities may not be familiar with the tactics, look and feel of a counterfeit foreign currency. In this regard, it’s vital to encourage greater use of the local currency, which gradually reduces the degree of dollarization, thereby preventing counterfeiting of foreign currency in Cambodia.
“Khmer Single Currency, Riel, Bolster Marketplace, Fruitful Economy” was the slogan of 3-hour event on 20 March 2016 cooperating between National Bank of Cambodia (NBC) and Young Entrepreneurs Association of Cambodia (YEAC) at CJCC in order to celebrate the 36th every riel is in the marketplace (20-Mar-1980 ~ 20-Mar-2016).
The governors and representatives of NBC, leaders and members of YEAC, CEO of AMK microfinance came to discuss the importance of the riel to Cambodia. Moreover, NBC also showed a video clip of “I Love Riel”.