Background of Policy Implications

Different from previous policy recommendations to expand the use of KHR in the future, the research report “Dollarization in Cambodia: Evidence from a Survey conducted in 2014-2015”clearly recognizes that the successful repression of dollarization needs policy instruments effectively suppressing the net work externality of dollar payments. The contribution of this research report is to propose explicitly for the first time, in addition to conventional market based policy measures proposed so far, the more instructive and mandate measures such as encouraging firms and sellers to quote price and make payment in KHR, requiring financial institutions to increase operations in KHR, making fiscal measures in KHR, and requiring assistance with the expenditures of donors and NGO projects in KHR, etc., which are useful for restricting the network externality of dollar based payments. On the extension of the same recognition, we can expect financing in KHR for rural regions targeted by the government policy, since according to the results of the NBC-JICA survey local transactions in agricultural products are as of now unfamiliar with the present dollarized financial system. Through the expansion of finance in KHR, which would create a KHR-denominated payment network, we may expect further expansion in the use of the KHR due to its network externalities. Dollarization of the Cambodian economy has the nature of a Nash equilibrium, with the network externality of dollar payments as its underpinnings. Government policies to increase the use of KHR (the Khmer riel) would cause great friction through institutional change, and the possibility of strong reactionary forces seeking to restore the current development path is high