nbc 2015 macroeconomic conference_exchange rate regime
TRANSCRIPT
Promote Riel and De-dollarization through
Exchange Rate Policy: Fix or Float or Anything Else?
2nd NBC Macroeconomic
Conference29 October, 2015
Phnom PenhNeak Samsen, Head of Economic
Research Nuppun Institute for Economic Research
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1.Motivation for this research topic
2.Research Methodology
3.Key findings
4.Ways forward
Content
Motivation for this research topic
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o The purpose of using exchange rate policy is to make market exchange rate ($-Riel) stable
o Stable exchange rate boosts confidence in using local currency
o Gradual appreciate of local currency encourages deposits in local currency
Exchange Rate is one of policy instruments to promote local
currency and de-dollarize
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Cambodia has had stable exchange rate
Source: National Bank of Cambodia
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o Reserved requirement 12% for US$ and 8% for Riel
o Government transactions, taxes and utilities are in Riel
o Encourage pricing of goods and services in Riel
RGC has also implemented other measures to promote Riel and de-
dollarize
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o Riel uses have been higher
o Cambodia has had greater macroeconomic, financial sector and political stability
Environments has also been conducive for promoting Riel
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But, dollarization remains high and one of the highest
Source: National Bank of Cambodia
Source: Lodewyk Erasmus et all “Dedollarization in Liberia—Lessons from Cross-country Experience”
So, is there anything to do with exchange rate regime Cambodia adopted?
Or
Anything else?
Research Methodology
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Based mainly on literature
o We looked at existing literature to see how other economies adopted exchange rate regimes in order to promote their local currency
o We also looked their additional and complementary measures they have undertaken
Key findings
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Many countries declared they adopted floating, but they actually
fixed it in practice
Source: Mark Stone, Harald Anderson, and Romain Veyrune (2008) Exchange Rate Regimes: Fix or Float? IMF Finance and
Development Magazine
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From the IMF assessment, many countries practiced fixed
regimes
Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2014
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In ASEAN, 6 practiced fixed and 4 floating
Soft pegs (Managed arrangement)
CambodiaMyanmarMalaysia
Soft pegs (Stabilized arrangement)
VietnamSingapore
Soft pegs (Crawl-like arrangement)
Laos
Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2014
Floating ThailandIndonesiaPhilippines
IsraelPeru
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o Vulnerable to speculative attacks when local currency exposed to global currency trading
o Asia financial crisis 1997o Mexico 1995 o England in 1992
o It is very costly to defense and in most cases failed to defense when there is financial crisis
Fixed regimes to ensure exchange rate stability
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o Floating doesn’t mean you can’t intervene
o So, intervention when you see appropriate is much better than you fix
o Appropriate for small open economy
Floating gave flexibilities for monetary authority to response to
market movements
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o But, it is suggested to float freely as Cambodia is deepening its financial sector to the global financial sector
Managed float for Cambodia is appropriate
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o In countries where they successfully de-dollarized, we observed that they have macroeconomic, financial and political stability for long time
o They developed comprehensive plan for de-dollarization
o They have capacities of institutions to formulate the plan and capacities that could response to market reactions effectively
But, exchange rate regime alone is not sufficient to
promote Riel and de-dollarize
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(a) macroeconomic policies and public debt management (exchange rate policy, monetary policy, fiscal policy/taxation, and debt management),
(b)financial policies; and
(c) prudential regulations on financial sector, and
(d)administrative measures that facilitate the enforcements of macroeconomic and financial policies.
The de-dollarization plan focused on 4 fronts:
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o Adoption and declaration of exchange rate regime is not enough; need capacity to implement it
o Market has to see the de-dollarization plan looked credible
o Implementation and enforcement of the plan needs government-wide coordination
What is also important is the capacities of institutions that involved in de-dollarization
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Ways forward
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o But, perhaps allow it to float more freely to prepare for the deepening of the financial market
o Cambodia has had greater macroeconomic, financial and political stability
o Perhaps, it is a good time to develop a de-dollarization plan and identify institutional capacity gaps
Adoption of floating exchange rate is appropriate
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o Institutions that have ability to formulate the plan that is comprehensive and sequenced
o Institutions that have ability to responses to market reactions when the plan is enforced
Building institutional capacities is very critical at this stage
