US-China Trade War: Cambodia, Asia Moving Away From US Dollar Dependence

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By Donald Lee

Phnom Penh: As the US-China trade war continues to escalate, Cambodia and members of ASEAN+3 including China, Japan, and South Korea are taking proactive measures to move away from US dollar dependence.

As the US-China trade war ramped up this month, finance ministers from ASEAN+3 member states met to boost regional financial integration and local currency bonds to secure their economies in the midst of global recession fears.

Analysts believe the member states are making a strong push to reduce dependency on the US dollar that is the foundation of the global financial system. Economic data suggests as consequence of the US-China trade war, global investment patterns are moving away from globalization and toward a three region trading system centered around the US, the European Union and China.

But the US’s dominance over the global financial sector cannot be overstated. The US dollar continues to be the de facto world reserve currency. US dollars make up 63 percent of global reserves while the euro makes up 20 percent. Asian currencies like the yen make up five percent and the Chinese yuan two percent.

In coordination with other Asian central banks, the National Bank of Cambodia’s (NBC) Monetary Policy Committee met Friday to reinforce its efforts to de-dollarize the Kingdom’s economy by using financial tools targeting the banking sector.

Commercial bank loans in Cambodia have traditionally been completely in US dollars. In 2016, the NBC announced that banks were required to meet a 10 percent riel quota in their loan portfolios by the end of this year. A major part of the central bank’s initiative was to make financial institutions contribute to the government’s de-dollarization efforts and promotion of the local currency.

The majority of commercial banks are having difficulties meeting the riel quota requirements, mainly due to the lack of demand for riel loans from borrowers. But the central bank is adamant that the banks must meet the quota by the end of the year as part of its strategy to reign in monetary control in an economy almost completely dependent on a foreign currency.

“We must respect that Cambodia has its own currency,” said Mohd Hanif Suadi, CEO of Maybank Cambodia. “First, we need to bring in enough riel deposits in order for us to give loans in Khmer riel.”

“We should be at three percent starting at the second quarter of this year,” added Suadi.

Commercial banks in the capital have been developing financial products that will force or incentivize clients to borrow at least a portion of their loans in Khmer riel.

“These riel loan products are definitely an attraction to customers that is already in place at our bank,” Joe Farrugia, CEO of Hong Leong Bank Cambodia PLC.

“We offer incentives to our customers to take up their loans either partially or fully in the local currency,” added Farrugia.

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