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Dollarization Dilemma : Price Stability at the Cost of External Competitiveness in Cambodia

Author

Listed:
  • Samreth,Sovannroeun
  • Sanchez Martin,Miguel Eduardo
  • Ly,Sodeth

Abstract

Cambodia has recorded both rapid economic growth and macroeconomic stability in recent decades despite (orthanks to) high levels of dollarization. Previous studies on dollarization in Cambodia have largely focused on examining its causes and estimating seigniorage losses. As an attempt to further explore the effects of dollarization in Cambodia, this paper examines its impact on the competitiveness of the export sector. The main results, based on a vector autoregression estimation of quarterly data over 1994Q4-2016Q4, indicate that a positive US interest rate shock has a negative impact on Cambodia's trade balance with the European Union, its main trading partner, as it leads to appreciation of the US dollar. Furthermore, this shock also leads to a significant decrease in Cambodia's international reserve levels during the first two quarters following the shock. The surrendering of monetary and exchange rate independence seems to affect the competitiveness of the tradable sector negatively as well as exacerbate financial sector vulnerability to solvency and liquidity risks.

Suggested Citation

  • Samreth,Sovannroeun & Sanchez Martin,Miguel Eduardo & Ly,Sodeth, 2019. "Dollarization Dilemma : Price Stability at the Cost of External Competitiveness in Cambodia," Policy Research Working Paper Series 8893, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8893
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    Cited by:

    1. Hay, Chanthol, 2021. "Real dollarization in Phnom Penh, Evidence from two surveys," Japan and the World Economy, Elsevier, vol. 60(C).

    More about this item

    Keywords

    International Trade and Trade Rules; Inflation; Macroeconomic Management; Economic Growth; Industrial Economics; Economic Theory&Research;
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