Dollarized Economy Essential for Foreign Investment

The AmCham president is advocating for Cambodia to retain its predominantly dollarized economy to continue to stimulate foreign investment into the nation as the dollar hits a record high.
A person uses US dollar bill at ACLEDA Bank in Phnom Penh. Kiripost/stringer
A person uses US dollar bill at ACLEDA Bank in Phnom Penh. Kiripost/stringer

A dollarized economy is good for foreign investors seeking to put money in Cambodia, a business executive said on Sunday, as the currency hit a record 20-year high.

Speaking at Real Estate Expo 2022 in Phnom Penh’s Premier Center Sen Sok, Anthony John Galliano, president of the American Chamber of Commerce in Cambodia (AmCham Cambodia), said being a dollarized economy, which is at about a rate of 85 percent, sparks a lot of debate. However, dollarization is an issue he has been advocating for.

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“It helps us, it helps us a lot,” Galliano said, adding that there is an Asian currency crisis in the region, particularly the value loss of the Peso in the Philippines.

“So, the dollar index has never been as high since 2002. The dollar is the strongest it has been in 20 years,” he said. “How does that help us? Oil prices are in dollars, commodity prices are in dollars.”

Galliano’s speech was part of his theme ‘Invest Cambodia’, which has been promoted by AmCham Cambodia and is now a mantra of the Chamber.

Anthony John Galliano speaks at Real Estate Expo 2022 in Phnom Penh. Kiripost/Penh Chamroeun
Anthony John Galliano speaks at Real Estate Expo 2022 in Phnom Penh. Kiripost/Penh Chamroeun

Investors coming to Cambodia have to consider two main factors. The value of assets coming up and down or the value of currency rising or falling.

“We have a dollarized economy, and we have one of the strongest currencies in the world right now. The dollar at the record high for the last two decades,” Galliano said.

Banks in Cambodia stopped dispensing small US dollar bills in May as part of the government’s efforts to pump more riels into the economy to increase its use.

The Financial Stability Review 2021, which was published recently by the National Bank of Cambodia (NBC), said the level of dollarization remains above 80 percent. This limits NBC’s role in influencing money supply and interest rates.

“A more riel-based economy will allow NBC to effectively implement monetary policy in response to economic shocks,” the review said, adding efforts include boosting loans in riels and raising awareness about the national currency.

Cambodia, as Galliano continued in his speech, is at a strategic location, right at the heart of Southeast Asia and is on track to becoming an Asian Tiger of the 21st Century. Asian Tigers are the developed East Asian economies of Hong Kong, Singapore, South Korea, and Taiwan, he said.

Between the 1960s and 1990s, they underwent rapid industrialization and maintained exceptionally high growth rates of more than 7 percent a year.

Later, Tiger Club economies, Indonesia, Malaysia, Philippines, Thailand, and Vietnam, followed the same growth model as the economies of the four Asian Tigers. “It is now Cambodia's turn to be recognized as the new Asian Tiger,” he added.

Galliano said Cambodia has been misguided as a poor, underdeveloped, country that is still recovering from war and genocide. Cambodia is a lower middle-income country, the same as Argentina, Brazil, Indonesia, and the Philippines.

He added that infrastructure has greatly improved with 87 percent electrification, forests at 46 percent of land area, health expectancy at 70-years-old, and major bonuses in the ease of conducting business.

Free Trade Agreement with China benefits Cambodia as the Regional Comprehensive Economic Partnership (RCEP) opens new market opportunities and allows the country to enjoy nearly free market access to a combined market.

The minimum share capital for setting up a private limited company is only $1,000 or 4 million riels. Cambodia has one of the lowest corporate tax rates in Southeast Asia.

The population is youthful, with about half of the 16 million people under 25-years-old, Galliano said.