The National Bank of Cambodia (NBC), the central bank of the Kingdom of Cambodia, wants the country to stop using the smallest US dollar banknotes because it “there is little demand for them”. The US Dollar $1, $2 and $5 bills will be collected and sent to a foreign country.
The NBC has requested that all Cambodian commercial banks and microfinance institutions send the small denominations for collection. The Khmer Times reports that the NBC has given a three-month deadline (June 1 to Aug 31) for all commercial banks and microfinance institutions (MFIs) to collect $1, $2 and $5 bills with no service charge during this period.
The bills are still legal tender in Cambodia and accepted nationwide which has been reiterated by the Prime Minister and the Cambodia Microfinance Association.
Prime Minister Hun Sen said “I would like to confirm to the Cambodian people that in addition to the NBC announcement on May 28 that the small US banknotes of $1, $2, and $5 is still widely used and accepted across the country.”
The NBC will transfer the cost of exporting the notes to the Cambodian commercial banks and MFIs from September 2020.
To allay fears of using the notes, the NBC said: “Please note that this measure does not ban any trafficking of these small US dollar banknotes of $1, $2, and $5 in the market.”
The actions will also be seen as part of the NBC to reduce the use of the US Dollar notes and increase the use of the riel (KHR) in its de-dollarisation goal.
The Phnom Penh Post reported that Stephen Higgins, a managing partner at Mekong Strategic Partners said the NBC’s goal is to promote the local currency and it is a significant step to encouraging people to use it.
The Bank said “The KHR depreciation against the US dollar will affect farmers and people whose income is in KHR. Therefore, to boost the demand of Khmer riel in the economy, especially for small transactions, the use of small US dollar banknotes should be replaced by the Khmer riel.”
The US Dollar notes are in wide circulation in Cambodia but many people have issues as business tend to refuse the notes when they are blemished with slight tears or are unclean.
According to NBC’s 2019 annual report, the share of riel in circulation in the Kingdom grew by about 33 per cent year-on-year and deposits in riel increased by 37 per cent in 2019 said the Phnom Penh Post.
The exchange rate between the USD and field is usually between 4,000-4,100 riel per dollar.