Cambodia aims to wean off dollar dependence with digital currency

From Nikkei Asia

TOKYO -- Central banks across the world are rushing to develop their own digital currencies in a bid to provide safe and convenient payment systems as digitalization rapidly expands to many segments of the economy.

China has been testing its digital yuan in multiple cities while the European Central Bank announced last month plans to proceed with its digital euro project and launch a two-year investigation that will look into the development and impacts of a central bank digital currency (CBDC).

The Southeast Asian country launched its "Bakong" digital currency in October 2020, ahead of launch plans from the world's major economies, and is currently the only live CBDC project aside from the Bahamas' Sand Dollar.

Bakong was developed by the National Bank of Cambodia, with help from Japanese blockchain technology company Soramitsu, in a bid to increase the presence of its own currency, the riel, and gradually shift away from use of the U.S. dollar.

NBC's director general, Chea Serey, who leads the project, told Nikkei Asia that "Bakong started sort of as a willingness to connect up the fragmented payment systems in Cambodia."

Unlike cryptocurrencies such as bitcoin, CBDCs are digital forms of fiat money backed and issued by central banks.

Bakong allows Cambodian citizens to pay at stores or send money through a mobile app, without the use of cash, and allows for settlements and remittances to be made in riel or U.S. dollars.

Cambodia runs a dual-currency system, with the U.S. dollar widely circulating in its economy. The country's dollarization began in the 1980s and 90s, following years of civil war and unrest.

Although the use of the riel has increased in terms of digital transactions since Bakong's launch, Chea Serey explains that the digital currency alone will not be able to switch Cambodia from a U.S. dollar-based economy to one based around its local currency. "There are other policies that need to be in place, like having a stable exchange rate and inflation rate, as well as [economic] growth prospects," she said.

https://asia.nikkei.com/Business/Markets/Currencies/Cambodia-aims-to-wean-off-US-dollar-dependence-with-digital-currency