A key strategy to increase the use of Cambodia’s local currency is to facilitate cross-border transactions in riels, facilitated by the Bakong digital financial system.
Cambodia’s central bank is working to encourage more frequent use of the local currency, the riel. It does this using a digital financial system called Bakong. The plan aims to reduce dependence on foreign currencies such as the US dollar and promote the use of the riel within the country’s economy.
Bakong: Facilitating Cross-Border Trade in Riel
According to Central Bank of Cambodia Governor Chea Serey in an interview with Nikkel Asia, cross-border QR code payments through Bakong will promote the use of local currency, further improving the value of the riel and reducing the value of the riel in the economy, given that more than 80% of transactions are conducted in US dollars. The US dollar accounts for a very large portion.
A key strategy to increase the use of Cambodia’s local currency is to facilitate cross-border transactions in riels, facilitated by the Bakong digital financial system. Through this system, QR code-based payments between neighboring countries such as Cambodia, Thailand, Laos, and Vietnam are possible, as well as transactions using China’s UnionPay.
Central banks in Asian countries are therefore aiming to encourage merchants to conduct business in their local currency by facilitating cross-border riel transactions. Therefore, the circulation and adoption of riel will increase within Cambodia and its borders. Serey added that these efforts are primarily aimed at encouraging the use of riel. Therefore, she did not use her executive powers to make it mandatory for people to use their local currency. The central bank aims to expand cross-border capabilities to India as early as June and is also in discussions with the Japanese government.
Reduce dollar dominance and achieve economic independence
The country’s goal in promoting the riel is to achieve greater economic independence and control over monetary policy. So Bakong is considered a tool, but not the only solution. The government also pays taxes and civil servant salaries in riel, further supporting its goal of promoting the use of the local currency.
Since its launch in 2020, the Bakong system has been undergoing continuous development to achieve its goal of simplifying payments for both individuals and businesses. Unlike other central bank digital currencies (CBDCs) that represent a single currency, Bakong is backed by the Cambodian Riel (KHR) and the United States Dollar (USD). The total amount of payments made through virtual commerce systems amounts to $70 billion, which is almost twice Cambodia’s GDP. In 2023, Riel trading volume alone will reach $20 billion of the total value, more than double the 2022 figure.
Although Bakong has experienced steady growth, Serey admits there are still some challenges to overcome, including managing capital flow and ensuring an appropriate client identification process for users. The governor also commented on digital currencies in general, saying that the internationalization of digital currencies such as China’s e-CNY still has a long way to go.
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