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Exchange Rate Movements in a Dollarized Economy: The Case of Cambodia

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Abstract

There has been an on-going debate on whether dollarization helps stabilize exchange rates for emerging economies. This paper discusses this issue in a highly dollarized country, Cambodia, by empirically examining the relationship between dollarization and exchange rate movements. The GARCH analysis suggests that dollarization induces the depreciation of the Cambodian riel as well as intensifies exchange rate variability. The result is consistent with the argument that dollarization is one of the crucial causes of exchange rate instability. Dollarization in Cambodia could be a constraint on poverty reduction since it tends to affect the living standard of the poor who earn the income in the riel through the depreciation of the currency and intensified volatility of exchange rates.

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  • Sok Heng Lay & Makoto Kakinaka & Koji Kotani, 2010. "Exchange Rate Movements in a Dollarized Economy: The Case of Cambodia," Working Papers EMS_2010_18, Research Institute, International University of Japan.
    • Handle: RePEc:iuj:wpaper:ems_2010_18
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    File URL: https://www2.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2010_18.pdf
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    Cited by:

    1. Samreth, Sovannroeun & Sok, Pagna, 2018. "Revisiting the Impacts of Exchange Rate Movement on the Dollarization Process in Cambodia," MPRA Paper 91240, University Library of Munich, Germany.
    2. Musoke, Zakia, 2017. "An empirical investigation on dollarization and currency devaluation: A case study of Tanzania," Economics Discussion Papers 2017-8, Kiel Institute for the World Economy.

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