Cambodia’s Riel Reawakens: From Sovereign Strength to Super Currency Renaissance

The De-dollarisation Journey and Riel’s Current Status

The pervasive dollarisation of the Cambodian economy traces its roots back to the turbulent post-Khmer Rouge era of the 1980s and 1990s. Years of hyperinflation and political instability severely eroded public confidence in the Riel, leading to a natural preference for the stable US dollar. The influx of foreign aid and remittances, particularly during the UN Transitional Authority in Cambodia (UNTAC) mission in the early 1990s, further solidified the dollar’s transactional and store-of-value functions. By the late 1990s, foreign currency deposits accounted for around 80% of broad money, a staggering level of dollarisation. While beneficial in providing initial macroeconomic stability and attracting foreign investment by reducing exchange rate risks, this deep dollarisation severely constrained the NBC’s monetary policy autonomy.

Recognising the long-term implications for economic sovereignty and effective macroeconomic management, the NBC has, for over a decade, pursued a strategic and gradual de-dollarisation agenda. This is not a forced, abrupt shift but a measured process designed to instil confidence in the Riel.

Key policy instruments employed include:

• Differentiated Reserve Requirements: The NBC imposes higher reserve requirements on foreign currency deposits compared to Riel deposits. This incentivises banks and financial institutions (BFIs) to increase Riel lending and holding, making the local currency more attractive for both businesses and consumers.
• Promotion of Riel in Transactions: Efforts include encouraging or, in some cases, requiring government employees and certain businesses to receive salaries in Riel. Tax payments, utility bills, and smaller transactions are increasingly mandated or encouraged in the local currency.
• Issuance of Riel-Denominated Bonds: The government has introduced Riel-denominated bonds, providing an investment avenue in the local currency, thereby reinforcing its credibility in financial markets and serving as a stable source of domestic financing.
• Public Awareness Campaigns: The NBC consistently educates the public on the importance and benefits of using the Riel, fostering national pride and understanding of monetary policy.
• Digital Innovation: The Bakong System: Launched in October 2020, Bakong is a ground breaking blockchain-based payment system developed by the NBC. It connects banks and mobile wallets, facilitating seamless, real-time, and often cost-free Riel transactions. Bakong’s widespread adoption (over 10 million accounts and transactions reaching $104.81 billion, or 330% of Cambodia’s GDP in 2024, albeit supporting both Riel and USD) has significantly boosted digital Riel usage and interoperability across the financial sector.

Despite these concerted efforts, Cambodia remains highly dollarised, especially for large transactions, real estate deals, and international trade. Public trust in the USD’s historical stability and familiarity remains a significant hurdle. Nevertheless, the trend is clear: the Riel’s circulation and digital usage are steadily increasing, particularly for daily transactions and within the microfinance sector. Deposits in Riel have also shown an upward trend, albeit still a smaller percentage of total deposits.

The Riel as a Factor of Economic Development and Prosperity

The successful reassertion of the Riel is not merely a symbolic act of sovereignty; it is a fundamental pillar of Cambodia’s long-term economic development and prosperity. A robust, widely used national currency confers a multitude of benefits:

1. Monetary Policy Autonomy: This is arguably the most critical advantage. In a highly dollarised economy, the central bank’s ability to conduct independent monetary policy is severely constrained. Interest rates are heavily influenced by the US Federal Reserve, and the NBC cannot effectively use tools like interest rate adjustments or open market operations to manage inflation, stimulate growth, or counter economic shocks. A strong Riel grants the NBC the necessary leverage to:
   • Control Inflation: By managing domestic money supply more effectively.
   • Stabilize the Economy: Through targeted interest rate adjustments and liquidity operations.
   • Respond to Crises: Deploying conventional monetary policy tools during economic downturns, which is often impossible when dollarised. The COVID-19 pandemic highlighted this limitation, as the NBC could not easily ease monetary policy when the economy contracted.
2. Reduced Exposure to External Shocks: Reliance on a foreign currency ties a nation’s economy to the monetary policy and economic cycles of the issuing country. Fluctuations in US interest rates or a strengthening/weakening US dollar can have unintended and often destabilising effects on Cambodia’s economy, irrespective of its domestic conditions. Greater Riel usage acts as a buffer against such imported volatility.
3. Enhanced Financial Stability: De-dollarisation mitigates systemic risks associated with currency mismatches on bank balance sheets. When banks lend in dollars but hold Riel deposits (or vice versa), they face significant exchange rate risks. A stronger Riel promotes Riel-denominated lending and deposits, reducing this vulnerability and making the financial system more resilient.
4. Improved Efficiency of the Financial Sector: Dollarisation often entails higher transaction costs due to currency conversions and the need for dual accounting systems. A dominant national currency simplifies transactions, reduces operational overhead for businesses and banks, and improves the efficiency of financial intermediation. It also fosters the development of deeper local financial markets, such as Riel-denominated bond markets and interbank liquidity.
5. Fiscal Independence and Seigniorage: A nation earns seigniorage (the profit made by a government by issuing currency) when its currency is used. In a dollarised economy, this benefit accrues to the US. A stronger Riel allows Cambodia to regain this revenue. Furthermore, it provides greater flexibility in managing public debt, as borrowing can be increasingly done in local currency, reducing foreign exchange risk on the national balance sheet.
6. National Pride and Sovereignty: Beyond economic calculations, a strong national currency is a powerful symbol of independence and national pride. It reinforces the state’s authority and strengthens the collective identity.

Factors Enhancing and Solidifying the Riel as a Formidable Trading Currency in the Coming Future

For the Riel to truly achieve “super currency” status, perhaps not globally, but certainly as a formidable regional trading currency, several factors will need to be continuously enhanced and solidified:

1. Sustained Economic Stability and Growth: The foundation for any strong currency is a stable and growing economy. Cambodia’s projected GDP growth and relatively low inflation are crucial. Maintaining prudent fiscal policies and attracting diverse foreign direct investment (FDI) will underpin the Riel’s stability.
2. Robust and Independent Monetary Policy: The NBC must continue its diligent and transparent monetary policy management, ensuring a stable exchange rate (currently managed float against the USD) while gradually increasing Riel usage. The ability to manage interest rates independently will be key to attracting Riel-denominated investments.
3. Deepening of Financial Markets: The development of a liquid Riel-denominated bond market, interbank market, and derivative instruments for hedging will be critical. This provides more avenues for investors to hold and transact in Riel, reducing reliance on the dollar for financial operations.
4. Advanced Digitalisation and Cross-Border Interoperability (Bakong’s Evolution): Bakong is a game-changer. Its continued expansion in domestic usage, coupled with its increasing cross-border linkages (already with Thailand, Laos, Vietnam, Malaysia, South Korea, and expanding to China and India), positions the Riel for significant regional trade integration. Seamless, low-cost Riel transactions across borders will naturally enhance its utility as a trading currency within ASEAN and beyond. The “super currency” aspect here lies in its potential as a digital backbone for regional payments, bypassing traditional SWIFT-like systems.
5. Formalisation of the Economy and Reduced Informal Sector: As more economic activities transition from the informal sector to formal, tax-paying businesses, and as digital payments become ubiquitous, the Riel’s circulation and official recorded usage will naturally increase, strengthening its data and credibility.
6. Diversification of Trade Partners and Currencies: While the USD remains dominant, Cambodia’s increasing trade with China, other ASEAN nations, and emerging markets provides opportunities to promote Riel-denominated transactions in bilateral trade agreements, gradually diversifying away from overwhelming USD reliance.
7. Enhanced Investor Confidence: Continued good governance, legal certainty, and a stable regulatory environment will attract more international investors willing to transact and hold assets in Riel, confident in its value and convertibility. Transparency in economic data and policies will be vital.