Cambodia to get third “official” currency: The yuan

Reading Time: 3 minutes
Yuan_riel
The current exchange rate of the riel to the yuan is around 615:1 and fluctuating

The US dollar as Cambodia’s anchor currency could soon become competition from the “redback” in case a new initiative by the country’s tourism ministry falls on fertile ground.

So far, when paying in cash in Cambodia’s larger cities and tourism areas, one uses the country’s original currency, the riel, only for petty purchases or small services, but the US dollar for all other transactions, and riel notes are used for fractional dollar amounts as US coins are not in circulation. The riel is also pegged to the US dollar at around 4,000 riel = 1 USD, whereby it fluctuates a bit.

This nearly perfect system (for a country that had its entire banking system destroyed by the Khmer Rouge in the 1970s and only slowly recovered from that era by rebuilding its monetary system), could be brought out of balance by a new entry: The Chinese yuan renminbi.

This is because Cambodia’s Tourism Ministry decided to encourage the tourism sector to accept the yuan as part of a drive to attract tourists from China, reported Khmer Daily.

The ministry released a new “Chi­­na Ready” strategy in late May with the aim of attracting two million Chinese tourists annually to Cambodia by 2020. The strategy entails recommendations to businesses that cater to tourists to “make it easy to use” Chinese yuan for payment.

“There will be no difficulty accepting Chinese yuan, it’s the same as accepting the US dollar,” said Tith Chantha, a secretary of state at the ministry, according to the report.

“Accepting yuan could attract more Chinese tourists. It is also helpful for local enterprises, because they don’t need to exchange currency anymore,” he added.

China is the second-largest source of tourists to the country after Vietnam, according to ministry data. In the first four months of this year, Cambodia recorded about 275,000 Chinese tourist arrivals, up by 13.6 per cent compared to the same period last year. Last year, a total of 694,712 tourists from China visited the country, a 24-per cent increase from 2014.

However, the strategy has also sparked concerns among some business owners who fear problems with handling the yuan, losses from currency fluctuations, as well as fake currency.

“In contrast to the US dollar, which is broadly used in the market, the yuan’s circulation is still limited,” In Channy, President and CEO of Acleda Bank, was quoted as saying by Cambodia Daily.

Shop owners complain that they already have enough problems with fake US currency, and with the acceptance of yuan the issue would be exacerbated because staff has no experience in, let alone tools for, spotting fake yuan notes.

Some observers point out that a daily fluctuating exchange rate makes it difficult to determine the exact price of goods and services in yuan, and a peg or at least a fixed price band to the riel similar to the US dollar would be useful.

One yuan currently currently equals about 615 riel, and the rate fluctuated between 605 and 657 riel over the past year which would make it a challenge to set prices in yuan for shops and restaurants as they technically would have to adjust yuan prices, for example in menus, regularly at short notice.

On the other hand, a peg of the riel to the yuan would highly likely trigger vivid arbitrage deals among tourists with a higher financial literacy within the triangle of riel, US dollar and yuan, because a peg of a national currency to two foreign currencies with fluctuating rates is an open invitation for such deals that in this case would seek to profit from differences in real market prices versus set values.

Money changers argue that they would lose out on exchange commissions if the yuan is directly accepted. Some hotels in Phnom Penh use to charge up to 15 per cent in commission when guests want to pay in foreign currency other than the US dollar. Credit cards companies could also lose out on commission.

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Reading Time: 3 minutes

The current exchange rate of the riel to the yuan is around 615:1 and fluctuating

The US dollar as Cambodia’s anchor currency could soon become competition from the “redback” in case a new initiative by the country’s tourism ministry falls on fertile ground.

Reading Time: 3 minutes

Yuan_riel
The current exchange rate of the riel to the yuan is around 615:1 and fluctuating

The US dollar as Cambodia’s anchor currency could soon become competition from the “redback” in case a new initiative by the country’s tourism ministry falls on fertile ground.

So far, when paying in cash in Cambodia’s larger cities and tourism areas, one uses the country’s original currency, the riel, only for petty purchases or small services, but the US dollar for all other transactions, and riel notes are used for fractional dollar amounts as US coins are not in circulation. The riel is also pegged to the US dollar at around 4,000 riel = 1 USD, whereby it fluctuates a bit.

This nearly perfect system (for a country that had its entire banking system destroyed by the Khmer Rouge in the 1970s and only slowly recovered from that era by rebuilding its monetary system), could be brought out of balance by a new entry: The Chinese yuan renminbi.

This is because Cambodia’s Tourism Ministry decided to encourage the tourism sector to accept the yuan as part of a drive to attract tourists from China, reported Khmer Daily.

The ministry released a new “Chi­­na Ready” strategy in late May with the aim of attracting two million Chinese tourists annually to Cambodia by 2020. The strategy entails recommendations to businesses that cater to tourists to “make it easy to use” Chinese yuan for payment.

“There will be no difficulty accepting Chinese yuan, it’s the same as accepting the US dollar,” said Tith Chantha, a secretary of state at the ministry, according to the report.

“Accepting yuan could attract more Chinese tourists. It is also helpful for local enterprises, because they don’t need to exchange currency anymore,” he added.

China is the second-largest source of tourists to the country after Vietnam, according to ministry data. In the first four months of this year, Cambodia recorded about 275,000 Chinese tourist arrivals, up by 13.6 per cent compared to the same period last year. Last year, a total of 694,712 tourists from China visited the country, a 24-per cent increase from 2014.

However, the strategy has also sparked concerns among some business owners who fear problems with handling the yuan, losses from currency fluctuations, as well as fake currency.

“In contrast to the US dollar, which is broadly used in the market, the yuan’s circulation is still limited,” In Channy, President and CEO of Acleda Bank, was quoted as saying by Cambodia Daily.

Shop owners complain that they already have enough problems with fake US currency, and with the acceptance of yuan the issue would be exacerbated because staff has no experience in, let alone tools for, spotting fake yuan notes.

Some observers point out that a daily fluctuating exchange rate makes it difficult to determine the exact price of goods and services in yuan, and a peg or at least a fixed price band to the riel similar to the US dollar would be useful.

One yuan currently currently equals about 615 riel, and the rate fluctuated between 605 and 657 riel over the past year which would make it a challenge to set prices in yuan for shops and restaurants as they technically would have to adjust yuan prices, for example in menus, regularly at short notice.

On the other hand, a peg of the riel to the yuan would highly likely trigger vivid arbitrage deals among tourists with a higher financial literacy within the triangle of riel, US dollar and yuan, because a peg of a national currency to two foreign currencies with fluctuating rates is an open invitation for such deals that in this case would seek to profit from differences in real market prices versus set values.

Money changers argue that they would lose out on exchange commissions if the yuan is directly accepted. Some hotels in Phnom Penh use to charge up to 15 per cent in commission when guests want to pay in foreign currency other than the US dollar. Credit cards companies could also lose out on commission.

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