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Dollarization in Cambodia: Causes and Policy Implications

  • Nombulelo Duma
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    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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    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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    1. Alain Ize & Eduardo Levy Yeyati, 2005. "Financial De-Dollarization: Is It for Real?," Business School Working Papers isitforreal, Universidad Torcuato Di Tella.
    2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-50, May.
    3. 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.
    4. Menon, Jayant, 2008. "Cambodia's Persistent Dollarization: Causes and Policy Options," Working Papers on Regional Economic Integration 19, Asian Development Bank.
    5. Owen F. Humpage, 2002. "An incentive-compatible suggestion for seigniorage sharing with dollarizing countries," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Jun.
    6. 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.
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