Dollarization and the National Bank of Cambodia's limited policy toolkit

Decades after the US dollar flooded into Cambodia during the UNTAC-administered transition of the early 1990s, the economy remains heavily dollarized: most bank deposits, loans and large transactions are still conducted in dollars rather than the riel, even though the National Bank of Cambodia (NBC) has pushed de-dollarization as a policy goal for years. That structure limits what NBC's monetary policy can actually do, since interest-rate changes have little traction when most credit is dollar-denominated, pushing the central bank toward direct foreign-exchange intervention instead. Its own 2023 annual report illustrates the mechanism: the riel came under depreciation pressure that year as dollar net inflows slowed and government spending rose, and NBC responded by selling dollars and absorbing riel from circulation until the exchange rate stabilised. More recently, NBC has paired this with structural tools, promoting riel-denominated wage payments in export sectors and expanding the Bakong digital payment system to settle more transactions in domestic currency. The result is a long-run growth story largely insulated from exchange-rate volatility, since dollar use removes a currency-crisis channel that has hit other emerging economies, but one in which NBC's influence over credit conditions and inflation is narrower than that of most regional peers.