Small-Dollar US Bills in Cambodia Become Burdens... Deposit Fees Imposed

Fees for Deposits Under $10
Plans to Expand Use of Local Currency Riel
Possibility of Merchants Refusing Small Dollar Payments or Passing on Fees

[Image source=Reuters Yonhap News]

[Asia Economy Phnom Penh Correspondent An Gil-hyun] "When traveling to Cambodia, make sure to bring enough 1-dollar bills."

This is common advice found in travel brochures or blogs introducing trips to Cambodia. However, such advice no longer holds true locally.

According to local media on the 9th, the National Bank of Cambodia (NBC) announced that starting September 1, financial institutions will be charged a fee when depositing US dollar bills under $10 to the central bank. The exact fee amount was not specified. However, industry insiders expect the fee to be around 3.5% of the deposit amount.

NBC explained the background for imposing the fee as follows: ▲to promote the independence of financial policy and improve economic growth efficiency by expanding the use of the local currency, the Riel, and ▲to increase demand for the local currency to prevent depreciation against the US dollar. Additionally, demand for small denomination US dollar bills has stagnated, and the cost burden of exchanging worn-out dollar bills is significant.

This announcement by NBC caused confusion in Cambodia's economic sector. It was interpreted as a ban on using $1, $2, and $5 bills under $10, leading to a sharp increase in businesses refusing small denomination US dollar bills. Exchange demand also surged rapidly, further weakening the local currency. Eventually, Prime Minister Hun Sen warned, "Anyone spreading fake news that '$1, $2, and $5 bills cannot be used' will be arrested."

Nonetheless, there is growing credibility to the forecast that small denomination US dollar bills will become a burden in Cambodia after three months. If financial institutions refuse to accept small denomination dollar bills due to the fee or accept them after deducting the fee, merchants may reject payments made with these bills. Some also suggest the possibility that the fee could be passed on to customers.

Cambodia is a country where the US dollar circulates more widely than its own currency, the Riel. The Riel is mainly used as change for amounts under one dollar. Cambodia is the only country in Southeast Asia that uses the US dollar almost as legal tender. As of 2018, the dollar accounted for 83% of total deposits.

NBC has implemented various de-dollarization measures to increase the circulation of the Riel. Considering that rapid de-dollarization could lead the economy to disaster, a gradual approach has been taken. Thanks to this policy, the dollar-Riel exchange rate has remained stable within ±2.5%.

Representative de-dollarization measures introduced by NBC include ▲raising the Riel share in total loans to 10% (December 2016), ▲launching an interbank Riel remittance and payment system and requiring product prices to be displayed in Riel (April 2016), and ▲authorizing the issuance of corporate bonds denominated in Riel (November 2017).

This content was produced with the assistance of AI translation services.