Dollarization and macroeconomic performance in Cambodia since the first 1993 general election

Abstract

This paper provides historical backgrounds of dollarization, the introduction of the Khmer riel and macroeconomic performance in the context of high dollarization after the Khmer Rouge regime which ended in year 1979. The high level of dollarization was caused by both economic and political factors. The history of large exchange rate depreciation and high inflation, trust in new local currency (which was abolished during the Khmer Rouge), political unrests, spending in U.S. dollars by international organizations for running elections, are among those factors. Macroeconomic environment was favourable as low inflation, stable exchange rate against U.S. dollar and high rate of GDP growth were achieved recently. Policy to gradually de-dollarize the economy is in place. However, dollarization cannot cushion Cambodian economy against recent global economic shocks such as global financial crisis in 2008 and Covid-19. A more active dedollarization policy shall be considered.