A key strategy to boost the use of the Cambodian local currency is to foster cross-border transactions in riel, which the Bakong digital financial system facilitates.
The central bank of Cambodia is working towards encouraging the use of its local currency, riel, more frequently. It is doing this by using a digital financial system called Bakong. This initiative aims to reduce reliance on foreign currencies, such as the United States dollar, and promote the use of riel within the country’s economy.
Bakong: Facilitating Cross-Border Transactions in Riel
According to the governor of the Cambodian Central Bank, Chea Serey, in an interview with Nikkel Asia, cross-border QR code payments made via Bakong are set to propel the usage of the local currency, which will further improve the value of riel and reduce the dominance of the US dollar on the economy, given that over 80% of transactions are conducted in USD.
A key strategy to boost the use of the Cambodian local currency is to foster cross-border transactions in riel, which the Bakong digital financial system facilitates. The system allows QR code-based payments between Cambodia and neighboring countries such as Thailand, Laos, and Vietnam, as well as transactions involving China’s UnionPay.
Thus, by promoting cross-border transactions in riel, the Asian country’s central bank aims to encourage merchants to execute business in the local currency. Therefore, the circulation and adoption of riel within Cambodia and its borders will increase. Serey further added that the effort is mainly aimed at encouraging the use of riel; therefore, she would not make it a must for people to use the local currency via her administrative power. The central bank aims to expand this cross-border functionality to India as early as June and is also in discussion with the Japanese government.
Reducing Dollar Dominance and Achieving Economic Independence
The country’s aim of promoting riel centers around achieving greater economic independence and control over its monetary policy. Thus, Bakong is seen as one tool but not the only solution. The government has also been accepting tax payments and paying civil servant wages in riel, further supporting the goal of promoting the local currency’s usage.
Since its launch in 2020, the Bakong system has undergone continuous development to facilitate its goal of streamlining payments for both individuals and businesses. Unlike other central bank digital currencies (CBDCs) that represent one currency, Bakong is backed by the Cambodian riel (KHR) and the US dollar (USD). The total value of payments that have been carried out through the virtual transaction system has reached $70 billion, which is almost double the value of Cambodia’s GDP. Riel transactions in 2023 alone amount to $20 billion of the total value, which is more than double the 2022 figures.
While Bakong has experienced steady growth, Serey acknowledges that there are still some challenges to overcome, including managing capital flow and ensuring a proper know-your-client process for users. The governor further commented on general digital currencies, stating that internationalizing digital currencies, like China’s e-CNY, still has a long way to go.
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