PHNOM PENH: Cambodia will soon not accept smaller denominated US dollar banknotes — US$1, US$2 and US$5 — due to low demand.
The National Bank of Cambodia (NBC) said it was considering not accepting them from banks and microfinance institutions (MFIs) which it said were flooding its stockpiles.
"We will give banks (and MFIs) three months starting June 1 until Aug 31 to take all those notes to the NBC for transport abroad without a service fee.
"Financial institutions will be charged if they take the notes to the NBC after the deadline.
"The NBC will continue to discuss the issue with banks and financial institutions as a step to set a suitable timeframe for completely not accepting these banknotes."
Phnom Penh Commercial Bank president Shin Chang-moo told The Phnom Penh Post that the move would contribute to the promotion of local currency.
"I expect, in the longer term, the use of Khmer riel (KHR) will increase to a great extent.
"We are already observing equivalent KHR notes quickly replacing the US$1 and US$5 notes, which are usually old and in a worn condition, often creating disputes about acceptance.
"I believe that NBC's new guideline will accelerate the process."
Stephen Higgins, a managing partner at Mekong Strategic Partners, said the NBC's goal was to promote the local currency and it was a significant step to encourage people to use it.
"This is a sensible move by the NBC to support its goal of promoting the riel.
"It will essentially result in a smaller influx of quality US$ notes coming into the country, so the notes you see circulating will be older and eventually rare."
The Centre for Policy Studies (CPS) director Chan Sophal said the NBC's move is part of the "de-dollarisation" goal.
"There is no sense in keeping lots of dollar notes at the expense of monetary policy which can be used at a time of crisis like now. As the Cambodian economy gets bigger, the loss of monetary instruments to effect the economy becomes quite costly.
"De-dollarisation should not be done overnight, as an autonomous monetary policy has to match the central bank's competency.
"But it has to start with some practical steps."
According to NBC's 2019 annual report, the share of riel in circulation in the Kingdom grew by 33 per cent year on year by last year's end as deposits in riel increased by 37 per cent.
The report also noted a steady rise in demand for the local currency, with the dollar deposit ratio dropping by two per cent last year.