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Senate President Hun Sen on October 7 said Cambodia holds at least $2.5 billion in treasury reserves, dismissing talks that the issuance of new 50,000-riel and 100,000-riel banknotes signaled financial difficulties.
In his Facebook post, Hun Sen reassured the public amid rumors on social media that the new banknotes reflected a shortage of cash or financial difficulties facing the government.
“I just want to tell you that cash in the treasury stands at no less than $2.5 billion, while the monthly salary expense is only $230 million,” he said.
Government revenue exceeded $5 billion in the first nine months of the year, averaging $500 million to $600 million per month, he said, adding that it was sufficient to cover expenses while treasury reserves stood above $2.5 billion.
The National Bank of Cambodia (NBC) also rejected unverified information on social media alleging that certain banking and financial institutions are experiencing or may soon face financial difficulties.
On October 1, Prime Minister Hun Manet said the issuance of new banknotes was part of the effort to strengthen security features, prevent counterfeiting and replace old, worn-out notes.
In September alone, about 92 million old banknotes had been collected, then shredded or incinerated, which required the replacement of new notes.
According to NBC, the 50,000-riel banknote has undergone three design changes, while the 100,000-riel note has been redesigned twice.
Ou Virak, president of the Phnom Penh-based think tank Future Forum, told CamboJA News that central banks routinely issue new banknotes to replace old ones, improve security features or increase money in circulation.
He said central banks may also increase the money supply through monetary policy, while governments can benefit from seigniorage – revenue generated from issuing currency.
However, Cambodia’s monetary policy is limited by a heavy reliance on the US dollar, Virak said. Major transactions, expenses and savings are denominated in dollars, meaning the U.S. captures much of the seigniorage associated with dollar usage.
“Confidence in a country is very crucial. Without trust and confidence, a currency is risking rapid devaluation, including hyperinflation,” he said. “Relying on U.S. dollars as a dollarized economy has the benefits of trust [and] stability as well as ease of trade. We are losing a small percentage of seigniorage in return.”
Still, he said, issuing new riel denominations could help increase riel circulation and use, while generating additional seigniorage for the government.
However, Virak said independent auditing was important to strengthen public confidence in the central bank and its monetary policy, noting that central banks in many countries operate independently of their governments.
“That’s not the case in Cambodia. But since Cambodia is vastly a dollarized economy, the risk of panic is low. Also, I doubt our national bank will do anything that would risk it,” he said.
Hong Vannak, an economist at the Royal Academy of Cambodia told CamboJA News that the rumors are inaccurate because, in principle, printing money cannot be done arbitrarily as it is tied to a country’s macroeconomics. If the state proceeds without comprehensive consideration, it will backfire, he added.
“The government is extremely cautious regarding macroeconomics when Cambodia’s economic flow, economic scale, and economic performance reach a certain level,” he said. “They make forecasts to measure the entire cash circulation in order to determine how much more money needs to be printed to respond to the scope of the economy in society and fulfill usage demand.”
Furthermore, Vannak noted that when the money supply exceeds actual usage demand or the overall size of the Cambodian economy, it automatically devalues the riel. This leads to a loss of confidence among users, especially our citizens, consumers, foreign investors, and affects our foreign borrowing operations.
“Leaders of every nation, especially in the economic and financial sector, are extremely cautious,” he stressed.
