De-dollarisation back in spotlight as gold rises

Cambodia’s major trading currency the US dollar will record its worst July in a decade reaching levels last seen more than two years ago against a range of its major trading partners’ currencies.

The price of gold  recorded more than $2,000 an ounce this week with predictions it could reach more than $2,300 an ounce.

Policymakers are only able to watch over this extreme market volatility and are unable to independently respond to Cambodia’s own economic needs because the highly dollarised economy is at the whim of the US Federal Reserve.

According to international market analysts, the US dollar fall is attributed to investors worried that excessive money-printing will trigger inflation in years ahead resulting in the withdrawal from US dollars into the traditional haven of gold.

“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” Goldman Sachs said this week.

There are now, they said, “real concerns around the longevity of the US dollar as a reserve currency”.

Concerns of uncontrollable actions by the US Federal Reserve have long been cited as a major reason for a de-dollarisation push led by the National Bank of Cambodia and Ministry of Economy and Finance over the years.

As annual pride in national currency initiatives and minor legislated banking requirements have increased the transactional volume of local riels, they have not really increased the amount in broad money which remains stubbornly under 20 percent. That said, this high dollarisation has been mainly perceived advantageous for Cambodia’s rapid development because the currency has been preferred by foreign investors as well as consumers.

“Most investors [both local and international] do not have confidence in the de-dollarisation of the Cambodian economy,” Vice-Chairman and Chief Operations Officer of the Cambodia Securities Exchange Ha Jong Weon said.

However, this current economic climate could force the central bank to expedite its ultimate goal of a de-dollarised Cambodia if it wants to ensure a favourable macro-economic environment with low inflation and stable exchange rates.

No direct policy measures have so far been implemented in response to these recent fears of a US currency fall, according to a recent speech by the National Bank of Cambodia (NBC) director, who says the answer lies in new block chain technology.

This will be through a system titled Distributed Ledger Technology (DLT) which will enable Cambodians to be able to make near-instant payments via the block chain payment platform.

Speaking at an event in May this year, Director of the NBC Chea Serey said the platform will enable the local economy to become less reliant on US dollars.

“The use of local currency is very minimal and the reason is more psychological than economic… In the case of Cambodia, all our fundamentals are strong. We have a very stable exchange rate, very low inflation rate and a very good economic outlook,” she said.

This will “ultimately undermine the popularity of the US dollar,” she added.

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