1. Promote Riel and De-
dollarization through
Exchange Rate Policy:
Fix or Float or Anything
Else?
2nd NBC Macroeconomic Conference
29 October, 2015
Phnom Penh
Neak Samsen, Head of Economic
Research Nuppun Institute for Economic
Research

2. 2
1.Motivation for this research
topic
2.Research Methodology
3.Key findings
Content

3. Motivation for this research topi

4. 4
o The purpose of using exchange rate
policy is to make market exchange rate
($-Riel) stable
o Stable exchange rate boosts confidence
in using local currency
o Gradual appreciate of local currency
encourages deposits in local currency
Exchange Rate is one of policy
instruments to promote local currency
and de-dollarize

5. 5
Cambodia has had stable exchange
rate
Source: National Bank of Cambodia

6. 6
o Reserved requirement 12% for US$ and 8% for
Riel
o Government transactions, taxes and utilities are
in Riel
o Encourage pricing of goods and services in Riel
RGC has also implemented other
measures to promote Riel and de-
dollarize

7. 7
o Riel uses have been higher
o Cambodia has had greater macroeconomic,
financial sector and political stability
Environments has also been
conducive for promoting Riel

8. 8
But, dollarization remains high
and one of the highest
Source: National Bank of Cambodia

9. Source: Lodewyk Erasmus et all “Dedollarization in Liberia—Lessons from Cross-country
Experience”

10. So, is there anything to do with
exchange rate regime Cambodia
adopted?
Or
Anything else?

11. Research Methodology

12. 12
Based mainly on literature
o We looked at existing literature to see
how other economies adopted exchange
rate regimes in order to promote their
local currency
o We also looked their additional and
complementary measures they have
undertaken

13. Key findings

14. 14
Many countries declared they adopted
floating, but they actually fixed it in
practice
Source: Mark Stone, Harald Anderson, and Romain Veyrune (2008)
Exchange Rate Regimes: Fix or Float? IMF Finance and Development
Magazine

15. 15
From the IMF assessment, many
countries practiced fixed regimes
Source: IMF Annual Report on Exchange Arrangements and Exchange
Restrictions 2014

16. 16
In ASEAN, 6 practiced fixed and
4 floating
Soft pegs
(Managed arrangement)
Cambodia
Myanmar
Malaysia
Softpegs
(Stabilizedarrangement)
Vietnam
Singapore
Softpegs
(Crawl-likearrangement)
Laos
Source: IMF Annual Report on Exchange Arrangements and Exchange
Restrictions 2014
Floating
Thailand
Indonesia
Philippines
Israel
Peru

17. 17
o Vulnerable to speculative attacks when local
currency exposed to global currency trading
o Asia financial crisis 1997
o Mexico 1995
o England in 1992
o It is very costly to defense and in most cases
failed to defense when there is financial crisis
Fixed regimes to ensure
exchange rate stability

18. 18
o Floating doesn’t mean you can’t intervene
o So, intervention when you see appropriate is
much better than you fix
o Appropriate for small open economy
Floating gave flexibilities for monetary
authority to response to market
movements

19. 19
o But, it is suggested to float freely as Cambodia
is deepening its financial sector to the global
financial sector
Managed float for Cambodia is
appropriate

20. 20
o In countries where they successfully de-dollarized,
we observed that they have macroeconomic,
financial and political stability for long time
o They developed comprehensive plan for de-
dollarization
o They have capacities of institutions to formulate the
plan and capacities that could response to market
reactions effectively
But, exchange rate regime alone is
not sufficient to promote Riel and
de-dollarize

21. 21
(a) macroeconomic policies and public debt
management (exchange rate policy, monetary
policy, fiscal policy/taxation, and debt
management),
(b) financial policies; and
(c) prudential regulations on financial sector, and
(d) administrative measures that facilitate the
enforcements of macroeconomic and financial
policies.
The de-dollarization plan
focused on 4 fronts:

22. 22
o Adoption and declaration of exchange rate
regime is not enough; need capacity to
implement it
o Market has to see the de-dollarization plan
looked credible
o Implementation and enforcement of the plan
needs government-wide coordination
What is also important is the capacities
of institutions that involved in de-
dollarization

23. 23
Ways forward

24. 24
o But, perhaps allow it to float more freely to
prepare for the deepening of the financial
market
o Cambodia has had greater macroeconomic,
financial and political stability
o Perhaps, it is a good time to develop a de-
dollarization plan and identify institutional
capacity gaps
Adoption of floating exchange
rate is appropriate

25. 25
o Institutions that have ability to formulate the
plan that is comprehensive and sequenced
o Institutions that have ability to responses to
market reactions when the plan is enforced
Building institutional capacities
is very critical at this stage

26. Thank you for your
kind attention !
neaksamsen@nuppun.org
www.nuppun.org
Facebook Page: Nuppun