Agènor, Pierre-Richard and Mohsin S. Khan (1996), “Foreign Currency Deposits and the Demand for Money in Developing Countries,” Journal of Development Economics, Vol. 50, pp. 101–118.
Allison, Theodore E. and Rosanna S. Pianalto (July 1997), “The Issuance of Series–1996 $100 Federal Reserve Notes: Goals, Strategy, and Likely Results,” Office of Board Members, Federal Reserve Bulletin.
Baliño, Tomás J.T., Charles Enoch, et. al. (1997), “Currency Board Arrangements: Issues and Experiences,” IMF Occasional Paper, No. 151, (Washington: International Monetary Fund).
Baliño, Tomás J.T., Adam Bennett, and Eduardo Borensztein (1999), “Monetary Policy in Dollarized Economies,” IMF Occasional Paper, No. 171, (Washington: International Monetary Fund).
Berg, Andrew and Eduardo Borensztein, 2000a (February 2000), “The Choice of Exchange Rate Regime and Monetary Target in Highly Dollarized Economies,” IMF Working Paper, No. 00/29, (Washington: International Monetary Fund).
Berg, Andrew and Eduardo Borensztein, 2000b, (December 2000), “Full Dollarization: The Pros and Cons,” Economic Issues, No. 24, (Washington: International Monetary Fund).
Bernan, Ben S., Mark Gertler, and Mark Watson (1997), “Systemic Monetary Policy and the Effects of Oil Price Shocks,” Brookings Papers on Economic Activity, (1), pp. 91-157.
Bolbol, Ali A. (1999), “Seigniorage, Dollarization and Public Debt: The Lebanese Civil War and Recovery Experience, 1982-97,” World Development,Vol. 27, No. 10, pp. 1861-73.
Brodsky, Boris (June 1997), “Dollarization and Monetary Policy in Russia,” Review of Economies in Transition, (Bank of Finland, Unit for Eastern European Economies).
Calvo, Guillermo A. and Carmen M. Reinhart (September 1999), “Capital Flow Reversals, the Exchange Rate Debate, and Dollarization,” Finance & Development, Volume 36, No. 3, (Washington: International Monetary Fund).
Calvo, Guillermo A. and Carmen M. Reinhart, (2000), “Reflections on Dollarization,” in Alesina and Barro eds., Currency Unions (Stanford: Hoover Institute Press).
Calvo, Guillermo A. and Carlos A. Vegh (1992), “Currency Substitution in Developing Countries: An Introduction,” IMF Working Paper 92/40, (Washington: International Monetary Fund).
Cuche, N.A. and M.K. Hess (1999), “Estimating Monthly GDP in a General Kalman Filter Framework: Evidence from Switzerland,” Working Paper (University of Lausanne).
Cuddington, John T. (1989), “Review of Currency Substitution: Theory and Evidence from Latin America,” by V. A. Canto and G. Nickelsburg,” Journal of Money, Credit and Banking, No. 21, pp. 267-271.
Edwards, Sebastian 2001a, (2001), “Dollarization: Myths and Realities,” Journal of Policy Modeling, No. 23, pp. 249-265.
Edwards, Sebastian, 2001b, (May 2001), “Dollarization and Economic Performance: An Empirical Investigation,” NBER Working Paper Series, No. 8274 (Cambridge, Massachusetts: National Bureau of Economic Research).
Eichengreen, Barry (2001), “What Problems Can Dollarization Solve?” Journal of Policy Modelings No. 23, pp. 267–277.
Fisher, Stanley (1982), “Seigniorage and the Case for a National Money,” Journal of Political Economy, Vol. 90, pp. 295–313.
Ghosh, Atish R., Anne-Marie Guide, and Holger C. Wolf (January 1998), “Currency Boards: The Ultimate Fix?” IMF Working Paper 98/8, (Washington: International Monetary Fund).
Giovannini, Alberto and Bart Turtelboom (1994), “Currency Substitution,” in F. Van derPloeg, ed., The Handbook of International Macroeconomics (Cambridge, Massachusetts: Blackwell), pp. 390–136.
Granger, C.W.J. (January 1969), “Investigating Causal Relations by Econometric Models and Cross-Spectral Methods,” Econometrica, Vol. 37, pp. 24-36.
Hanke, S.H. (1999), “Some Thoughts on Currency Boards,” in M. I. Blejer and M. Skreb (eds.) Balance of Payments, Exchange Rates, and Competitiveness in Transition Economies. (Norwell, Massachusetts: Kluwer Academic Publishers).
Happe, Nancy (December 1995), “Cambodia—Financial Policy Implications of Dollarization,” (Washington: International Monetary Fund), unpublished.
Harvey, Andrew C. and Richard G. Pierse (March 1994), “Estimating Missing Observations in Economic Time Series,” Journal of the American Statistical Association, 79 (385), pp. 125-131
Hoffmaister, Alexander and Carlos A. Végh Gramont (October 1995), “Disinflation and the Recession-Now-Versus-Recession-Later Hypothesis: Evidence from Uruguay,” IMF Working Paper No. 95/99, (Washington: International Monetary Fund).
Hromcova, Jana, (1998), “Economics Letters 60—A Note on Income Velocity of Money in a Cash-In-Advance Economy with Capital,” pp. 91-96 (Elsevier Publishers).
Kalman, Rudolf E. (1960), “A New Approach to Linear Filtering and Prediction Problems,” Journal of Basic Engineering, Transactions of the ASME Series D, 82, pp. 35-45.
Kamin, Steven B. and Neil R. Ericsson (November 1993), “Dollarization in Argentina,” International Finance Discussion Papers, No. 460, (Board of Governors of the Federal Reserve System).
Keat, Chhon and Moniroth Aun Porn (1999), “Cambodia’s Economic Development—Policies, Strategies, and Implementation,” (London: ASEAN Academic Press).
Koopman, S. J., N. Shephard, and J. A. Doornik (1999), “Statistical Algorithms for Models in State-Space Using SsfPack 2.2,” Econometrics Journal, 2(1), pp. 107-160.
Liang, Hong, Thomas Rumbaugh, Kotaro Ishi, and Atsushi Masuda, (August 2000), “Cambodia: Selected Issues” (Washington: International Monetary Fund).
Marciniak, Philippe et al., “An Integrated Framework for Cambodia,” Chapter II— Macroeconomic Assessment, (Washington: International Monetary Fund), forthcoming.
Marshall, D.A. (1987), “Inflation and Asset Returns in a Monetary Economy with Transactions Costs,” Doctoral Dissertation, Carnegie-Mellon University.
May, Tola, 1995a, (January 25, 1995), “Auction System of the National Bank of Cambodia” (Standard Chartered Bank: Indochina Monitor).
May, Tola, 1995b, (December 1, 1995), “De-dollarization,” National Bank of Cambodia Bulletin, (Phnom Penh: National Bank of Cambodia).
McKinnon, Ronald I. (1985), “Two Concepts of International Currency Substitution,” in M. D. Connolly and J. McDermott (eds.), The Economics of the Caribbean Basin, New York, Praeger, pp. 101-13.
McKinnon, Ronald I., (1996), “Direct and Indirect Concepts of International Currency Substitution” in Paul Mizen and Eric J. Pentecost, eds., The Macroeconomics of International Currencies: Theory, Policy, and Evidence (U.K.: Edward Elgar) pp. 44-59
Mendoza, Enrique G., “The Benefits of Dollarization when Stabilization Policy Lacks Credibility and Financial Markets are Imperfect,” Journal of Money, Credit, and Banking, forthcoming.
Menon, Jayant, 1998a, (June 1998), “De-Dollarizing Cambodia,” Cambodia Development Review, Volume 2, Issue 2, (Cambodia Development Resource Institute).
Menon, Jayant, 1998b, “Cambodia: ASEAN Membership and Macroeconomic Policy Issues,” ADB T.A. No. 5713 – CAM/LAO: Technical Assistance to Cambodia and Lao PDR to Prepare for Membership in ASEAN (Cambodian Component), (Manilla: Asian Development Bank).
Milner, Chris, Paul Mizen, and Eric Pentecost (1998), “A Cross-Country Panel Analysis of Currency Substitution and Trade,” LSE Discussion Paper No. 99/14, (London School of Economics).
Mueller, Johannes (1994), “Dollarization in Lebanon,” IMF Working Paper No. 94/129, (Washington: International Monetary Fund).
Mueller, Johannes, and Joannes Mongardini (2000), “Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic,” IMF Staff Papers Vol. 47, No. 2 pp. 218-237, (Washington: International Monetary Fund).
Ortiz, Guillermo (May 1983), “Currency Substitution in Mexico; the Dollarization Problem,” Journal of Money, Credit, and Banking (U.S.), Vol.15, pp. 174-185.
Poloz, S.S. (1986), “Currency Substitution and the Precautionary Demand for Money,” Journal of International Money and Finance, Vol. 5 (1), pp. 115–124.
Rose, Andrew (April 2000), “One Money, One Market: the Effect of Common Currencies on Trade,” Economic Policy: A European Forum (U.K.), No. 30, pp. 9-45.
Rose, Andrew, and Jeffrey Frankel (August 2000), “Estimating the Effect of Currency Unions on Trade and Output,” National Bureau of Economic Research (U.S.), Working Paper Series, No. 7857, pp. 1-50.
Sahay, Ratna and Carlos A. Vegh (September 1995), “Dollarization in Transition Economies: Evidence and Policy Implications,” IMF Working Paper, No. 95/96, (Washington: International Monetary Fund).
Sarajevs, Vadims (2000), “Econometric Analysis of Currency Substitution: The Case of Latvia,” Discussion Papers, No. 4, (Bank of Finland, Institute for Economies in Transition).
Sturzenegger, Federico (1997), “Understanding the Welfare Implications of Currency Substitution,” Journal of Economic Dynamics and Control, No. 21, pp. 391-416.
Vetlov, Igor (2001), “Dollarization in Lithuania: An Econometric Approach,” Discussion Papers, No. 1, (Bank of Finland, Institute for Economies in Transition).
We are indebted for useful comments and suggestions to Tom Rumbaugh, as well as Philippe Callier, Ed Frydl, Balazs Horvath, Vitale Kramarenko, Tola May, Johannes Mueller, Gabriel Sensenbrenner, and other IMF colleagues. We are grateful to Mrs. Chanthana Neav from the National Bank of Cambodia for providing data and insightful comments, to Marc Paoletti (IMF resident Advisor) for budgetary data, and to Paolo Guarda (Central Bank of Luxemburg) for comments. Chenda Pich offered superb secretarial assistance. We bear responsibility for any remaining errors.
Cambodia had its first experience with limited dollarization during the Lon Nol regime (1970-75), as increases in U.S. military personnel and assistance brought dollars into the country.
It is noteworthy that, although the capital was forcibly emptied of all inhabitants a few days after it fell to the Khmers Rouges, the latter destroyed only two buildings in Phnom Penh, one of which was the National Bank of Cambodia’s (NBC) headquarters.
In view of the shortcomings of their economic management, the Khmers Rouges considered reintroducing money in 1976, and went as far as printing bank notes, but they stopped short of proceeding. They later introduced a parallel currency, the Khmer riel, in March 1993 in the western border areas of the country under their control. This currency had only a limited circulation.
The domleung, the unit for gold widely used in Cambodia, weighs 37.5 grams.
During 1993-98, the NBC auctioned off a total of $177 million to strengthen the riel; however, since 1999, the NBC has refrained from doing so, except for the sale of a small amount of dollars in April-May 2001 to relieve temporary pressure on the riel’s exchange rate.
No GDP estimates exist for earlier years.
However, there continue to be variations, divergences, and inconsistencies among authors on the notions of “dollarization,” “currency substitution,” and “asset substitution.”
For simplicity’s sake, from this point on we use the term dollarization for both currency and asset substitution, unless otherwise specified.
It seems that because of its continued depreciation in recent years, the Lao kip is not used/accepted in Cambodian border areas with the Lao PDR.
The old CP1, used until end-2001, covered only the capital city and suffered from a number of structural weaknesses, as well as excessive sensitivity to seasonal fluctuations in food prices. It is thus possible that it slightly underestimated the underlying inflation. It was replaced in January 2002 by a new, updated, and expanded index
During 1998-2000, $530 million worth of banknotes were deposited overseas by Cambodian commercial banks.
A similar table is presented by Liang (2000), although time coverage and results differ slightly for the reserve-money method. For the central-bank-profit method, we use actual interest earnings data.
Such a move would probably not prevent Thai baht continuing to circulate in some border areas.
Current transactions in Cambodia are free of restrictions, and the authorities adopted IMF Article VIII status on January 1, 2002.
We do not consider the hypothetical issues related to a Central Bank conducting monetary policy with dollar-denominated instruments or using its foreign reserves and correspondent accounts.
Reserve requirements on riel and foreign currency deposits at commercial banks are payable in riels and in foreign currency, respectively. Since most commercial banks are fully dollarized, they meet their reserve requirements in dollars, except the Foreign Trade Bank (FTB), which meets them in riels.
As the banking system in Cambodia is almost fully dollarized, interest rates for transactions in riels are largely irrelevant for analytical purposes.
However, if international bank exposure to Cambodia had been high relative to GDP, then withdrawal of such funding might have had more pronounced contagion-like effects.
Technically, the Government can have recourse to the monetization of fiscal deficits through riel emission, but given the narrow riel base, the inflationary and exchange rate impacts provide a deterrent.
Excluding exchange rate adjustments and outstanding operations.
Riels in circulation have been relatively stable since end-1999.
They are however included in the calculation of official reserves.
Some particularly strong CBA backing rules require foreign currency coverage of deposits in domestic currency in the banking system. Considering the low amount of deposits in riels in Cambodia, even if the coverage had been augmented to include such deposits, net official reserves would still have been equivalent to 2 and 3/4 times all riel components of broad money at end-December 2001.
The recently approved Land Law, the prospect of a land registry, forthcoming laws on corporate insolvency and secured transactions, and the ongoing reform of the judiciary system will make the taking of collateral eventually easier, and thus may lead to new long-term lending activities. In the mean time, short-term credit is the most likely to develop.
Commercial banks currently sterilize some of their dollar deposits by investing them abroad.
For the first time, the MEF issued government bonds in February 2002 to bring the capital of the FTB to the statutory threshold
Most checks clear immediately, hence no lags are used. There are virtually no electronic payments.
This component includes all cash foreign currencies circulating in Cambodia. There are no sufficient time series for checks denominated in dollars.
Relaxing this hypothesis leads to a nonlinear specification, which is hardly tractable, owing to the mathematical complexity of the resulting equations.
We also tried using CPI all items less food, beverages, and tobacco, and found similar results.
We experimented with different initial values and found that they led to similar results.