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Dollarization in Cambodia

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  • Nombulelo Duma
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    Abstract

    Over the past decade, Cambodia has become Asia’s most dollarized economy. In contrast, dollarization in neighboring Lao P.D.R., Mongolia, and Vietnam has been either declining or broadly stable. Somewhat paradoxically, growing dollarization in Cambodia has occurred against the backdrop of greater macroeconomic and political stability. The usual motive, currency substitution, does not appear to have been a factor. As the volume of dollars increased over the years, so has the volume of riel. A strong inward flow of dollars related to garments sector exports, tourism receipts, foreign direct investment, and aid, has benefitted the dollar based urban economy. The riel based rural economy has, however, lagged behind. Given international experience in de-dollarization, a carefully managed market based strategy, supported by a continued stable macroeconomic environment is essential for Cambodia’s de-dollarization.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/49.

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    Length: 25
    Date of creation: 01 Mar 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/49

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    Related research

    Keywords: Dollarization; Economic models; foreign currency; monetary policy; inflation; macroeconomic stability; export sector; value of money; low inflation; capital flight; foreign exchange; open economy macroeconomics; expectations of inflation; printing money; loss of confidence; balance sheets; money stock; currency depreciation; high inflation; double digit inflation; increase in inflation; financial stability;

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    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Addicted to Dollars," CEMA Working Papers 594, China Economics and Management Academy, Central University of Finance and Economics.
    2. Alain Ize & Eduardo Levy Yeyati, 2005. "Financial De-Dollarization: Is It for Real?," Business School Working Papers isitforreal, Universidad Torcuato Di Tella.
    3. Owen F. Humpage, 2002. "An incentive-compatible suggestion for seigniorage sharing with dollarizing countries," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Jun.
    4. Luis Oscar Herrera & Rodrigo Valdes, 2005. "De-dollarization, Indexation and Nominalization: the Chilean Experience," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(4), pages 281-312.
    5. Menon, Jayant, 2008. "Cambodia's Persistent Dollarization: Causes and Policy Options," Working Papers on Regional Economic Integration 19, Asian Development Bank.
    6. Eduardo Levy Yeyati & Alain Ize, 2005. "Financial De-Dollarization," IMF Working Papers 05/187, International Monetary Fund.
    7. Bufman, Gil & Leiderman, Leonardo, 1993. "Currency Substitution under Nonexpected Utility: Some Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 320-35, August.
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    Cited by:
    1. Hal Hill & Jayant Menon, 2011. "Reducing Vulnerability in Transition Economies: Crises and Adjustment in Cambodia," Departmental Working Papers 2011-08, The Australian National University, Arndt-Corden Department of Economics.

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