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Central Bank Moves To Stabilize Faltering Riel

The National Bank continues to buy up riel with dollar reserves in an effort to increase the value of the national currency, which has fallen more than 1 percent since April 20, its lowest level in three years.

By May 28, the US dollar was equal to 4,219 riel, an increase from 4,186 riel over two months, according to the National Bank. To increase the value of the riel, the bank used $4 million to buy riel out of circulation through a bidding process last week. And on Monday, the National Bank announced it would use $3 million more.

Tal Nay Im, secretary-general of the National Bank, said the first round of bidding would not raise the value of the riel, but would instead stabilize it. The bank intends to sell more dollars in an effort to get more riel out of circulation, thereby raising its value. Financial analysts say it will take around $10 million to increase the value of the riel by 1 percent.

The dollar has been used in Cambodia since Untac’s peacekeeping mission in the 1990s, working side by side with a riel that was demolished along with the banking system under the Khmer Rouge. Decades of civil strife and several currency changes have weakened people’s faith in the riel, and that is likely to continue so long as the riel’s value continues to depreciate, financial analysts say.

Economists say the depreciation is not a great concern, though it can bring an increase in price for exported products. On the other hand, a riel whose value has appreciated too much can also hurt the export market. The National Bank has tried to keep the riel’s value between 3,900 and 4,100 per dollar.

The Economist Intelligence Unit estimated in April the riel would depreciate an average 1.3 percent in 2010 and 2011.

“The riel depreciation was caused by a slowdown in our economy,” Chan Sophal, president of the Cambodian Economic Association, told VOA Khmer. “The flow of dollars derives from exports, tourism and foreign investment, which has not been as much as before.”

Another cause was the fear of a financial crisis in Europe, which recently had to take severe measures to bail out the economy of Greece, a member of the European Union that came close to defaulting on its loans.

“If there is an economic crisis, like the fear of the Greece crisis and the financial system in euro zone, those holding the euro will sell their currency and buy dollars,” said Sam Genthy, a financial expert at the Securities and Exchange Commission of Cambodia. “That trend makes a higher dollar value. So if the dollar goes down a bit, the riel will go back to a normal balance.”

The riel is also undergoing seasonal depreciation.

Cheam Tieng, deputy executive director of treasury and internal affairs at Acleda Bank, said the riel faces depreciation pressure every May, but it’s value will rise again when more dollars flow in the tourism sector and when the harvest arrives.