New dollar sale to boost riel

Monday, 14 June 2010
Nguon Sovan
The Phnom Penh Post

NBC to off-load additional US$7 million to stabilise struggling local currency

AN additional US$7 million will be put up for sale by the National Bank of Cambodia (NBC) this month in the organisation’s latest attempt to stablilse the value of the riel, it was announced Friday.

Banks, private companies and money lenders will be able to use riel to buy seven separate lots of $1 million from NBC.

Bidding on the first sale begins today with the last sell-off scheduled for June 30, according to an announcement signed by the bank’s Secretary General Sum Saniseth and released Friday.

The intervention, aimed at taking supplies of local currency out of the real economy thereby increasing demand for the devalued riel, follows the sale of $10 million carried out by NBC over the last three weeks.

So far, its attempt to revalue the riel has had a small but positive affect.

According to Ly Hour Exchange, the largest money changer in Phnom Penh, one greenback was worth 4,252 riels Sunday, a slight improvement on the 4,265 riels per dollar recorded a week earlier.

This strengthening interrupts a slide that has seen the riel depreciate to record lows.

Its value has fallen 1.47 percent over the past two months, from 4,190 riels per US dollar in mid-April, according to Ly Hour.

The riel “has gradually begun to appreciate after the central bank’s interventions”, said Sieng Lim, the owner of Ly Hour Exchange, on Sunday.

She believes the riel will stabilise when the harvest season begins in September.

It is the NBC’s policy to intervene when the riel depreciates to more than 4,200 riels per US dollar by dipping into its foreign reserves to buy in riel currency.

As of May, according to NBC data, the bank held $2.5 billion worth of foreign reserves.

According to last year’s annual report, in 2009 the NBC put 32 lots of currency worth $54 million on the market to ensure that the riel remained valued at between 4,000 and 4,200 per US dollar.

Cambodia has an estimated $500 million worth of riels in circulation.

Last week, Kang Chandararot, president of Cambodia Institute for Development Study, praised NBC’s interventions.

He said that the riel’s depreciation was the result of a strengthening US dollar – which has been affected by the weakened euro – and a reduced inflow of dollars into Cambodia through trade and investment.

Tal Nay Im, director general of the NBC, and Secretary Genearl Sum Saniseth did not reply to repeated calls for comment Sunday.

Central Bank Moves To Stabilize Faltering Riel

Ros Sothea, VOA Khmer
Phnom Penh Thursday, 03 June 2010

“The riel depreciation was caused by a slowdown in our economy. The flow of dollars derives from exports, tourism and foreign investment, which has not been as much as before.”

The National Bank continues to buy up riel with dollar reserves in an effort to increase the value of the national currency, which has fallen more than 1 percent since April 20, its lowest level in three years.

By May 28, the US dollar was equal to 4,219 riel, an increase from 4,186 riel over two months, according to the National Bank. To increase the value of the riel, the bank used $4 million to buy riel out of circulation through a bidding process last week. And on Monday, the National Bank announced it would use $3 million more.

Tal Nay Im, secretary-general of the National Bank, said the first round of bidding would not raise the value of the riel, but would instead stabilize it. The bank intends to sell more dollars in an effort to get more riel out of circulation, thereby raising its value. Financial analysts say it will take around $10 million to increase the value of the riel by 1 percent.

The dollar has been used in Cambodia since Untac’s peacekeeping mission in the 1990s, working side by side with a riel that was demolished along with the banking system under the Khmer Rouge. Decades of civil strife and several currency changes have weakened people’s faith in the riel, and that is likely to continue so long as the riel’s value continues to depreciate, financial analysts say.

Economists say the depreciation is not a great concern, though it can bring an increase in price for exported products. On the other hand, a riel whose value has appreciated too much can also hurt the export market. The National Bank has tried to keep the riel’s value between 3,900 and 4,100 per dollar.

The Economist Intelligence Unit estimated in April the riel would depreciate an average 1.3 percent in 2010 and 2011.

“The riel depreciation was caused by a slowdown in our economy,” Chan Sophal, president of the Cambodian Economic Association, told VOA Khmer. “The flow of dollars derives from exports, tourism and foreign investment, which has not been as much as before.”

Another cause was the fear of a financial crisis in Europe, which recently had to take severe measures to bail out the economy of Greece, a member of the European Union that came close to defaulting on its loans.

“If there is an economic crisis, like the fear of the Greece crisis and the financial system in euro zone, those holding the euro will sell their currency and buy dollars,” said Sam Genthy, a financial expert at the Securities and Exchange Commission of Cambodia. “That trend makes a higher dollar value. So if the dollar goes down a bit, the riel will go back to a normal balance.”

The riel is also undergoing seasonal depreciation.

Cheam Tieng, deputy executive director of treasury and internal affairs at Acleda Bank, said the riel faces depreciation pressure every May, but it’s value will rise again when more dollars flow in the tourism sector and when the harvest arrives.

Banker: Trust in Finance Growing

By Sok Khemara, VOA Khmer
Washington
04 February 2008

Many Cambodians still misunderstand the benefits of banking and finance, preferring the dollar to the riel and avoiding savings accounts to their detriment, a bank official said Monday.

Channy Ung, director of Acleda Bank, the third largest in bank in Cambodia, said that putting just a little money in the country’s banks would increase their ability to distribute credit. At the same time, people would earn interest, he said, something they cannot get from money stashed at home.

The Khmer Rouge abolished banks and money, in an era that saw several regime and currency changes, leading to a deep-rooted distrust of banks.

But a large increase in the number of people making deposits meant trust was returning, Channy Ung said, as a guest on “Hello VOA.”

About 90 percent of the money deposited in 2007 was in US dollars, however, he said, showing that people still did not trust the national currency.

The riel had not lost its value, he said, and inflation has been steady for a long time. But the national bank still does not require the sole use of the riel.

Channy Ung said the banks existed as a place for financial safety, which could include freezing assets of criminals at the behest of the national bank and courts.

“But so far there is no money freezing against any company without reason and without proper authorization from the Central Bank,” he said.