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Policies for Promotion of Local Currency Proposed in Cambodia

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Policies for Promotion of Local Currency Proposed in Cambodia

2019.05.07

Some of the results of "Empirical Study on the Promotion of Home Currency in Cambodia," a joint research project by the JICA Research Institute and the National Bank of Cambodia (NBC), were disseminated at a seminar held jointly by JICA Research Institute (JICA-RI) and NBC in Phnom Penh, the capital of Cambodia, on March 19, 2019.

This research project has done some analysis on the background of the dollarization of Cambodia's economy and effective policies for promoting the use of the riel, the local currency, based on data from surveys of financial institutions, enterprises and households throughout the country.

Around 150 people participated in the seminar, including governments, financial institutions, universities and research institute stakeholders

The results of the second household and enterprise survey and the second financial institution survey, conducted between 2017 and 2018, were presented at the seminar.

For the household and enterprise survey, interviews were held mainly with subjects of the first survey (from October 2014 to January 2015). The interviews targeted 2,273 households and 856 enterprises from August to December 2017.

A household survey was done throughout Cambodia

For financial institutions, 27 local financial institutions including commercial banks and microfinance institutions were surveyed between May 2018 and February 2019, and financial data (branch level) from the past five years was collected.

Around 150 people participated in the seminar, including governments, financial institutions, universities and research institute stakeholders.

After an opening address by Yuichi Sugano, the chief representative of the JICA Cambodia Office, Hidenobu Okuda (visiting fellow, JICA-RI) introduced the research project and an overview of Cambodian dollarization.

This was followed by a presentation by Sam Vichet and Heng Chanhang (economist, NBC).

They showed the result of the household and enterprise surveys that while dollarization continues, the use of the local currency by both households and enterprises has increased compared with the first survey.

Next, Seng Kimty (economist, NBC) gave a presentation on the results of the survey on financial institutions.

Kimty said that in the banking sector, while local currency deposits are actually increasing rapidly, foreign currency deposits are also growing at the same rate, resulting in the persistence in deposit dollarization. He explained that this might be caused by large capital inflows to the financial sector in recent years, and the banking sector spread USD over the country.

Next, Koji Kubo (research fellow, the Institute of Developing Economies), presented the results of analysis of money changers and the foreign exchange market.

Kubo said that in Cambodia, while large import/export enterprises do not face currency mismatch, domestic SMEs are encountering currency mismatch risk. That is one of the causes of the proliferation of small money-exchange businesses.

After these presentations, Daiju Aiba (research fellow, JICA-RI) proposed policies to promote the local currency in Cambodia based on the results of the first and second surveys.

"To promote the local currency, it is important to encourage financial institutions to provide more riel loans and at the same it is also important to stimulate riel loan demand from households and enterprises. In particular, it is necessary to improve the financial literacy of household members and to promote the management literacy of SME managers, especially keeping accounting system in local currency," he said.

Finally, NBC Deputy Governor Neav Chanthana spoke and the seminar came to a close.

There was a large local reaction to the seminar, including The Phnom Penh Post, one of the major local newspapers, covering it and quoting Aiba's remarks at the event.