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1. WHAT IS THE MISSION OF THE NATIONAL BANK OF CAMBODIA?
The mission of the National Bank of Cambodia (NBC), the nation’s central bank, is to determine and direct monetary policy aimed at maintaining price stability to foster economic development.
2. WHAT ARE THE PRIMARY FUNCTIONS OF THE NBC?
The National Bank of Cambodia is the monetary and supervisory authority in Cambodia. Acting as the monetary authority, the NBC is the sole issuer of the Khmer riel, the national currency. It maintains the monetary stability. In this regard, the NBC formulates, implements, and monitors monetary and exchange rate policies in consultation with the Royal Government, and in consideration of the framework of the economic and financial policy of the kingdom. As the supervisory authority, the National Bank of Cambodia also has the authority to license, delicense, regulate and supervise banks, and financial institutions in Cambodia. In addition, the NBC conducts regular economic and monetary analysis, publishes various publications, oversees the nation’s payment systems, establishes the balance of payments, and participates in the management of external debt and claims.
3. WHEN WAS THE NBC CREATED? WHAT HAS BEEN THE HISTORY SINCE?
The National Bank of Cambodia was established on December 23, 1954, after gaining independence from the French Protectorate and after the Institut d’Emission (the printing house for the three Indochina countries) was closed. The NBC then printed its own national currency (riel) shortly after. In 1964 under the Sangkum Reastre Niyum, the NBC was nationalized and transitioned from a semi-autonomous institution to a state-owned bank as a public entity, with characteristics of industry and commerce. National and foreign private banks were closed and the government established some state-owned banks such as the Inatean Bank, the Development Bank, and the Rural Agricultural Bank.
On April 17, 1975, the NBC was closed when the Khmer Rouge regime came into power. The building was ruined, currency was abolished, and the banking system was destroyed. After the Khmer Rouge regime collapsed, the NBC was reestablished as the central bank of the country and renamed as the “People's Bank of Kampuchea” on October 10, 1979.
On March 20, 1980 the People's Bank of Kampuchea reissued the riel banknotes to facilitate the exchange of goods and payment of civil servant's salaries. On January 30, 1992 the National Assembly adopted the law to change the name from the “People's Bank of Kampuchea” back to the “National Bank of Cambodia”, which was promulgated by the council of state on February 8, 1992. The remarkable development of the banking system has significantly progressed since the second half of 1990s when the Law on the Organization and Conduct of the National Bank of Cambodia, Law on Banking and Financial Institutions, and other laws and regulations as well as key banking reforms were implemented.
4. IS THE NBC PART OF THE GOVERNMENT?
The National Bank of Cambodia is an autonomous public entity which is permanently empowered, has operating autonomy, and submits reports of the implementation of policy and results of its mission to the National Assembly and the Royal Government. The central bank, in consultation with the Royal Government, and in consideration of the framework of the economic and financial policy of the kingdom, determines and implements the monetary policy in order to sustain and foster economic development.
5. WHO RUNS THE NBC?
The board of directors is the highest decision-making body of the NBC. The board of directors consists of seven members. The Governor is the Chairman of the board and serves as the Chief Executive Officer of the central bank, reports to the board, and is responsible for implementing the policy and the conduct of day-to-day operations. The Governor is appointed, replaced, and dismissed by a royal decree on the recommendation of the Royal Government. The board holds the meetings not less than once every two months.
6. HOW DOES THE NBC IMPLEMENT MONETARY POLICY?
Cambodia’s highly dollarized economy has posed limits on monetary policy implementation, which include mainly exchange rate intervention and reserve requirements. As a result, the NBC adopted the managed floating exchange rate regime to ensure that the exchange rate fluctuates within the band. Interventions in the foreign exchange market are conducted to stabilize the exchange rate to contribute to price stability and macroeconomic stability. Reserve requirement has been set cautiously to manage money supply and enough liquidity to support the banking system. The NBC introduced the Negotiable Certificate of Deposits (NCDs) in order to develop the interbank market and lay the groundwork for market-based monetary policy operations.
7. DOES THE NBC LEND MONEY TO THE PUBLIC?
No, the NBC does not lend money to the public. The NBC supervises the banking system in Cambodia, in which there are commercial banks, specialized banks, microfinance institutions, money changers and more. In this regard, the NBC does not provide any lending to the public, which is the role of banks and financial institutions.
8. CAN I EXCHANGE MONEY AT THE NBC?
Yes. The NBC can exchange any old riel notes or coins, which it has issued, upon demand without any fees or charges. Riel notes that can be exchanged are old or torn or exchanged from large value notes to smaller denominations and vice versa. The NBC may decline to exchange notes if their designs are illegible, misshaped or perforated, or if more than 30% of their surface has been lost. Such currency shall be withdrawn and destroyed without indemnity to the owner, except that, in special cases, the NBC may determine whole or partial compensation. However, you cannot exchange foreign currencies to Cambodian currency and vice versa.
9. WHY IS THE U.S. DOLLAR COMMONLY USED IN CAMBODIA?
The U.S. dollar is commonly used in Cambodia due to the blend of four factors—historical, economic, political, and social. During the Khmer Rouge regime, the national currency was abolished. There was no market, no trade and no freedom. When the regime collapsed on January 7, 1979 Cambodia started to embrace peace. On October 10, 1979 the NBC was reestablished and on March 20th, 1980 the NBC reissued the national currency (riel), however trust and confidence of the riel was still very limited and fragile soon after the war.
In the early 1990s, the United Nations Transitional Authority in Cambodia (UNTAC) entered Cambodia to organize the first national election in Cambodia. During the UNTAC mission a huge influx of U.S. dollars was injected into Cambodian economy. People started to recognize the value of the dollar and increasingly used it for trade and business transactions. With more stability and openness of the economy; trade, tourism, and foreign direct investments increased and economic growth flourished. As a result, the U.S. dollar became popular and is still widely used for most business transactions, especially for large transactions and in urban areas. However, according to various surveys, the use of the riel is predominant in small transactions and in rural areas as means of economic activities (payment, store of value, and loans). It is worth noting that the demand for riel has constantly increased during the last two decades and continuing to do so.
10. WHY IS THE KHMER RIEL IMPORTANT FOR THE CAMBODIAN ECONOMY?
The use of the Khmer riel is important because it promotes the identity of the nation. It builds trust of the state, enhances solidarity of the people, and brings about a spirit of unity and nationalism of the country.
Economically, more riel on the market improves the effectiveness of monetary policy. The NBC is able to enhance macroeconomic policy management, and sustain the economic development of the country since money supply has a close relationship with production and employment. The dependence on the U.S. dollar leaves Cambodia vulnerable to economic shocks in the U.S. economy. If riel were the main currency the central bank can play the role as the lender of last resort. The use of riel can also help the government gain seigniorage (revenue receiving from issuing banknotes). In addition, if riel alone were to be used in the common marketplace, it would reduce the transaction costs of exchange operations.