Why Boost Riel Usage in Cambodia?

Overview of Fintech in Cambodia

In recent years, Cambodia has witnessed significant advancements in financial technology (Fintech) driven by the government’s efforts to modernize the country’s financial infrastructure. One of the landmark innovations in Cambodia’s Fintech landscape is the Bakong system, launched in October 2020 by the National Bank of Cambodia (NBC). Bakong is a digital payment system that facilitates instant mobile payments, making financial transactions more inclusive and accessible to the Cambodian population.

The Bakong system operates as a blockchain-based interbank payment platform, allowing users to send and receive payments using the local currency, Riel (KHR), and the US dollar (USD) in a seamless manner. This initiative was primarily driven by the need to promote the usage of the Cambodian riel, reduce the reliance on the US dollar, and improve financial inclusion among the Cambodian population, especially those in rural areas who might not have access to traditional banking services. The Bakong system is also designed to enhance the digital economy by providing a modern payment infrastructure, making it easier for businesses and consumers to transact.

Bakong is a product of the National Bank of Cambodia’s vision to promote local currency usage and empower financial services through technology. Its history is closely tied to Cambodia’s monetary landscape, where the widespread use of foreign currencies has overshadowed the local currency, Riel. With the introduction of Bakong, the Cambodian government aims to reverse this trend by encouraging the use of the Riel in daily transactions, fostering a greater sense of national monetary identity.

The initiative behind Bakong is part of a broader strategy by NBC to modernize Cambodia’s financial system, provide inclusive financial services to the unbanked population, and increase the use of the national currency. The system has been gaining traction, with a reported 75.6 million digital transactions in the first half of 2024, indicating a 180 percent growth compared to the same period in 2023. As Cambodia continues to embrace digital solutions, Bakong is expected to play a key role in promoting the Riel as a vital component of the national economy.

The Riel Currency in Cambodia

The Cambodian Riel (KHR) was introduced in 1953 when Cambodia gained independence from France, but its usage has been relatively limited due to the widespread adoption of foreign currencies, especially the US dollar (USD). Today, Cambodia operates under a dual currency system, with the Riel and the US dollar coexisting, though the dollar dominates most large-scale transactions and international trade. Dollarization in Cambodia accounts for roughly 85 percent of the economy, leaving the Riel with only 15 percent of market share in everyday usage.

There are historical reasons for this. After the Khmer Rouge regime collapsed in the late 1970s, the country’s economy was devastated, and the Cambodian Riel lost its value. To stabilize the economy, large amounts of US dollars were introduced in the early 1990s as part of international aid and investment, establishing the dollar as a stable alternative for financial transactions. As a result, the US dollar became entrenched in Cambodia’s economic system, especially in urban areas and international trade.

However, despite the prevalence of the US dollar, the Cambodian government has long promoted the wider use of the Riel to enhance the country’s monetary sovereignty and reduce reliance on foreign currencies. The Riel is widely used in rural areas for small transactions, and there are concerted efforts by the government and financial institutions to increase its usage in urban centers and large businesses. The National Bank of Cambodia (NBC) and the Ministry of Commerce (MoC) have been at the forefront of these efforts, advocating for policies and initiatives that encourage businesses and consumers to adopt the Riel in their daily operations.

Why Boost Riel Usage? The Advantages of Strengthening National Currency

Promoting the use of the Cambodian Riel brings several key advantages to the economy. The first and foremost benefit is enhanced monetary sovereignty. When a nation relies heavily on foreign currencies, it surrenders some control over its monetary policy. By promoting the Riel, the Cambodian government gains greater control over its monetary policy, which is essential for economic stability and growth.

1. Reducing Dependency on the US Dollar: Overreliance on a foreign currency, like the US dollar, exposes the country to external shocks, such as changes in US monetary policy, which may affect exchange rates and inflation in Cambodia. By increasing the use of the Riel, Cambodia can mitigate the impact of such external factors on its economy.
2. Promoting National Identity: Currency is a symbol of national identity and pride. By promoting the use of the Riel, the Cambodian government reinforces the sense of national pride and unity. Encouraging citizens and businesses to use the local currency fosters a sense of ownership over the country’s economic future.
3. Facilitating Economic Growth: A more widely used local currency can also stimulate economic growth by reducing the costs associated with currency conversion and foreign exchange risks. When businesses and consumers primarily use the Riel, transaction costs decline, and the overall economic environment becomes more stable and predictable.
4. Strengthening Financial Stability: A stronger Riel reduces the risks associated with currency fluctuations and makes the financial system more resilient. By promoting the use of the Riel, Cambodia can build a more robust financial system less susceptible to external economic pressures.
5. Supporting Local Businesses: Increasing the use of the Riel can provide significant benefits to local businesses. Businesses that transact in the local currency are less exposed to exchange rate fluctuations, which can impact profitability. Moreover, promoting Riel usage encourages local businesses to contribute to the country’s monetary system, fostering a cycle of economic growth and development.
6. Increasing Transparency: The use of the Riel in pricing can help improve transparency in the economy. When prices are set in a foreign currency, such as the US dollar, it can create confusion for consumers, especially when exchange rates fluctuate. Using the Riel as the primary currency for pricing goods and services helps establish a more transparent and straightforward pricing system.
7. Enhancing Government Revenue: When more transactions occur in the local currency, it allows the government to have a better understanding of the economic activity within the country. This, in turn, helps in improving tax collection, as there is a clearer record of financial transactions within the country.

The Role of the National Bank of Cambodia (NBC) and the Ministry of Commerce (MoC) in Promoting Riel Usage

The National Bank of Cambodia (NBC) and the Ministry of Commerce (MoC) have played a pivotal role in promoting the use of the Riel within Cambodia and internationally. Through various initiatives, they aim to encourage businesses and consumers to adopt the Riel in daily transactions, thus enhancing the country’s monetary stability and financial inclusion.

NBC’s Initiatives

1. Bakong System: The most significant initiative launched by NBC to promote the use of the Riel is the Bakong digital payment system. As a blockchain-based interbank payment system, Bakong allows users to send and receive payments using the Riel, thereby increasing the convenience of using the national currency. According to recent reports, Bakong has seen substantial growth, with over 75.6 million transactions in the first half of 2024, marking a significant increase in Riel-based digital payments.
2. Seminars and Public Awareness Campaigns: The NBC regularly organizes seminars and workshops to educate the public and private sector on the importance of using the Riel. For instance, Yim Leat, Deputy Governor of the NBC, recently spoke at a seminar aimed at raising awareness of the benefits of using the Riel for businesses and individuals alike. He emphasized the need for companies and financial institutions to adopt the Riel in their operations for the overall benefit of the national economy.
3. Favorable Exchange Rates for Riel Users: The NBC has also implemented favorable exchange rate policies to encourage more businesses to adopt the Riel. By offering attractive exchange rates for Riel transactions, the central bank is incentivizing both local businesses and consumers to use the Riel instead of the US dollar.
4. Price Tag Regulations: One of the key measures introduced by the NBC and the Ministry of Commerce is the requirement for businesses to display prices in Riel. This initiative, known as the Riel Price Tag policy, is designed to encourage consumers to think in terms of the local currency rather than foreign currencies. By promoting transparency in pricing, this regulation also helps consumers better understand the value of goods and services in Riel.
5. Paying Salaries in Riel: Another important initiative to promote the use of the Riel is the encouragement of businesses and enterprises to pay employee salaries in Riel. By doing so, the NBC hopes to integrate the Riel more deeply into the everyday lives of Cambodian citizens, ensuring that the local currency becomes more widely accepted and used.

Ministry of Commerce’s Role

1. Prakas on Price Tag Regulation: The Ministry of Commerce (MoC) has been actively involved in promoting the use of the Riel by issuing the Prakas (a legal regulation) that mandates businesses to display prices in Riel. This regulation aims to strengthen public awareness of the Riel and increase the habit of using it for everyday transactions. Secretary of State Buon Sarakmony of the Ministry of Commerce has highlighted the importance of this initiative, noting that it enhances transparency and reduces the cost of exchange operations for consumers and businesses.
2. Promoting Riel in Trade and Commerce: The Ministry of Commerce has been working closely with the NBC to promote the use of the Riel in both domestic and international trade. By encouraging local businesses to use the Riel in their transactions, the ministry is fostering a more resilient and self-sustaining economy. The MoC has also been instrumental in raising public awareness about the benefits of using the Riel in daily transactions.
3. Collaboration with Financial Institutions: The MoC has also partnered with financial institutions to promote the adoption of the Riel in banking services. By working with banks, the ministry is ensuring that more people have access to Riel-based financial products and services, such as savings accounts, loans, and mobile payment platforms.

Challenges to Boosting Riel Usage

Despite these concerted efforts, there are still challenges in boosting the use of the Riel in Cambodia. The dominance of the US dollar in the economy, especially in larger transactions and international trade, presents a significant hurdle. Businesses and consumers often prefer the stability and familiarity of the US dollar, making it difficult to shift to the Riel.

Additionally, public trust in the Riel needs to be further strengthened. Many Cambodians view the US dollar as a more stable and reliable currency, particularly in times of economic uncertainty. To address this, the government needs to continue its efforts to stabilize the Riel and build public confidence in its value.

Conclusion

Promoting the use of the Cambodian Riel is a vital step in ensuring the country’s financial stability, enhancing its monetary sovereignty, and fostering economic growth. Through initiatives such as the Bakong system, favorable exchange rate policies, and public awareness campaigns, the National Bank of Cambodia and the Ministry of Commerce are leading the way in encouraging the adoption of the Riel in daily transactions.

As Cambodia’s economy continues to modernize, the increased use of the Riel will play a crucial role in shaping the nation’s financial future. While challenges remain, the concerted efforts of the Cambodian government, financial institutions, and businesses will help pave the way for a more resilient and self-sustaining monetary system, firmly rooted in the national currency.