Khr

What Is KHR?

KHR is the ISO 4217 currency code for the Cambodian Riel, the official currency of the Kingdom of Cambodia. As a national currency, the KHR falls under the broader financial category of currencies within the global financial system. The KHR is issued and managed by the National Bank of Cambodia (NBC), which functions as the country's central bank. While the KHR is legal tender throughout Cambodia, the economy remains highly dollarized, especially in urban areas and for larger transactions.

History and Origin

The history of the Cambodian Riel is marked by significant political and economic transformations. The first iteration of the Riel was introduced in 1953, following Cambodia's independence from France, replacing the French Indochinese piastre. During this period, the National Bank of Cambodia was established and gained the autonomy to print the Riel as the national currency.³⁹

However, between 1975 and 1979, during the Khmer Rouge regime, the country's entire monetary system was abolished, and the use of money, including the Riel, ceased.³⁷, ³⁸ The National Bank of Cambodia building was destroyed, and economic activities largely reverted to a barter system.³⁶

The second Riel was officially reintroduced on March 20, 1980, after the collapse of the Khmer Rouge regime, when the People's Bank of Kampuchea (later renamed the National Bank of Cambodia) was re-established.³³, ³⁴, ³⁵ Initially, confidence in the KHR remained low due to political instability and a severe lack of financial resources.³² The late 1980s and early 1990s saw severe economic instability, including periods of hyperinflation, with the Riel's value collapsing significantly.³¹ For instance, annual inflation peaked at 177% in 1992.³⁰ This period also coincided with the United Nations Transitional Authority in Cambodia (UNTAC) mission, which flooded the country with U.S. dollars, leading to accelerated dollarization as people sought a more stable alternative.²⁹ Since the late 1990s, the KHR has maintained an unofficial stable exchange rate against the U.S. Dollar, hovering around 4,100 KHR per USD for over two decades.²⁷, ²⁸ The National Bank of Cambodia continues to promote the use of the Riel to strengthen economic sovereignty.²⁶

Key Takeaways

• KHR is the ISO 4217 code for the Cambodian Riel, Cambodia's official currency.
• The Riel was first introduced in 1953, abolished during the Khmer Rouge regime (1975-1979), and reintroduced in 1980.
• Cambodia's economy is highly dollarized, with the KHR coexisting alongside the U.S. Dollar.
• The National Bank of Cambodia (NBC) actively works to promote greater use of the KHR and maintain its stability.
• Recent economic growth in Cambodia has been driven by exports and tourism, influencing the Riel's stability.²⁴, ²⁵

Formula and Calculation

The KHR, as a fiat currency, does not have a specific formula for its calculation or intrinsic value. Its value is determined by market forces, including supply and demand within the foreign exchange market, and is influenced by the monetary policy set by the National Bank of Cambodia.

The exchange rate between the KHR and other currencies, such as the U.S. Dollar, is expressed as a ratio. For example, the exchange rate of KHR per U.S. Dollar can be represented as:

Where:

• Amount of KHR represents the number of Cambodian Riel exchanged for one U.S. Dollar.
• 1 USD represents one unit of the U.S. Dollar.

The National Bank of Cambodia aims to maintain exchange rate stability through interventions in the market.²³

Interpreting the KHR

Interpreting the KHR primarily involves understanding its stability relative to major foreign currencies, particularly the U.S. Dollar, and the domestic inflation rate. A stable exchange rate for the KHR suggests a predictable economic environment, which is generally favorable for trade and investment. The National Bank of Cambodia actively uses foreign exchange interventions to manage the KHR's stability.²¹, ²²

Economists and investors observe the KHR's exchange rate against the U.S. Dollar as a key indicator of Cambodia's monetary stability and economic health. Movements in the KHR's value can impact the cost of imports and exports, influencing trade balances and overall economic growth. The country's strong export performance and recovering tourism sector are factors in its economic outlook.²⁰

Hypothetical Example

Imagine a tourist visits Cambodia and wants to exchange U.S. Dollars for KHR. They check the current exchange rate and find it is approximately 4,100 KHR to 1 U.S. Dollar. If the tourist exchanges $100, they would receive:

This exchange allows the tourist to use the local currency for everyday transactions such as buying food from local vendors or paying for small services where KHR might be preferred or required. Conversely, if a local business earns KHR and needs to convert it to U.S. Dollars for international suppliers, they would use the same prevailing exchange rate to determine the U.S. Dollar equivalent of their KHR earnings.

Practical Applications

The KHR plays a crucial role in Cambodia's economy, appearing in various financial contexts:

• Daily Transactions: Despite widespread dollarization, the KHR is essential for smaller transactions, daily consumer purchases, and government payments, including civil servant salaries.¹⁹
• Monetary Policy Implementation: The National Bank of Cambodia (NBC) utilizes various monetary policy tools, such as setting reserve requirement rates and conducting foreign exchange interventions, to manage the supply of the KHR and maintain price stability.¹⁶, ¹⁷, ¹⁸ These policies are aimed at fostering sustainable economic growth.¹⁵
• Government Finance: The Cambodian government collects taxes and pays expenses in KHR, influencing the domestic money supply and fiscal policy.
• Financial Sector Operations: Banks and microfinance institutions operate in both KHR and U.S. Dollars, with the NBC encouraging increased use of the local currency in the financial sector to enhance its control over monetary outcomes.¹⁴ For example, the NBC has required banks to disburse a portion of their loans in KHR.¹³
• International Settlements: While major international trade often uses U.S. Dollars, efforts are underway to promote KHR in cross-border transactions, strengthening its role.¹² Cambodia's current account has recently shown a surplus, reflecting improvements in trade and tourism.¹¹

The World Bank noted that Cambodia's economic growth is expected to improve, driven by a revival in exports and tourism.¹⁰

Limitations and Criticisms

Despite efforts by the National Bank of Cambodia to strengthen its usage, the KHR faces significant limitations due to Cambodia's high level of dollarization. A key criticism is that the extensive use of the U.S. Dollar limits the effectiveness of the NBC's independent monetary policy. For instance, the central bank's ability to use interest rate policy to combat inflation is constrained because a large majority of the currency in circulation is in U.S. Dollars.⁹

This reliance on a foreign currency can reduce the central bank's capacity to act as a lender of last resort in times of financial crisis, impacting financial stability.⁸ Furthermore, managing the KHR's exchange rate against the U.S. Dollar remains a primary objective, requiring continuous foreign exchange interventions to maintain stability.⁷ The continued presence of significant household debt and a subdued real estate sector also pose risks to the nation's financial sector and overall economic stability.⁵, ⁶

KHR vs. U.S. Dollar

The Cambodian Riel (KHR) is the official national currency of Cambodia, whereas the U.S. Dollar is a foreign currency that has gained de facto status as a parallel medium of exchange, especially for large transactions and savings. This dual-currency system, often referred to as dollarization, means that both KHR and the U.S. Dollar circulate widely.

A key difference lies in their roles and perceived stability. The U.S. Dollar is often preferred for its perceived stability and international acceptance, particularly for large purchases, property transactions, and investments, as well as for accumulating foreign direct investment. The KHR, while legally mandated and promoted by the National Bank of Cambodia, is more commonly used for smaller daily expenditures and in rural areas. The ongoing presence of dollarization presents challenges for the National Bank of Cambodia in implementing independent monetary policy and fully controlling the nation's money supply. Efforts to increase the use of the KHR aim to enhance national economic sovereignty and the effectiveness of domestic economic management, reducing reliance on the U.S. Dollar.⁴

FAQs

What is the symbol for the Cambodian Riel?

The symbol for the Cambodian Riel is ៛. It is commonly abbreviated as KHR in international financial contexts.

Is the Cambodian Riel a freely convertible currency?

While the KHR can be exchanged for other currencies, its convertibility is largely influenced by the presence of the U.S. Dollar within the Cambodian economy. The National Bank of Cambodia manages its exchange rate against the U.S. Dollar.

What factors affect the value of the KHR?

The value of the KHR is influenced by Cambodia's overall economic performance, inflation rates, the country's balance of payments, and the monetary policy actions of the National Bank of Cambodia, particularly its interventions in the foreign exchange market. Global economic conditions and capital flows also play a role, as is common for most developing economies.

Can I use U.S. Dollars in Cambodia?

Yes, the U.S. Dollar is widely accepted and commonly used for many transactions in Cambodia, particularly in urban areas and tourist destinations. The Cambodian economy operates with a significant degree of dollarization, meaning the U.S. Dollar circulates alongside the KHR.

What is the National Bank of Cambodia's role regarding the KHR?

The National Bank of Cambodia's primary mission is to determine and direct monetary policy to maintain price stability and facilitate economic growth. T³his includes managing the KHR, ensuring its stability, and promoting its use to reduce the country's reliance on foreign currencies.¹, ²