Cambodia Riel (KHR) Complete Guide: Understanding the Dual Dollar Economy

Cambodia's Economy and Currency Uniqueness

Cambodia, located in the Mekong River region of Southeast Asia, is a tourism powerhouse famous for Angkor Wat and has recently been rapidly growing as an "Asian production base." However, this country's financial system has a rare characteristic globally.

That is high-level dollarization. In Cambodia, the local currency Riel (KHR) and US Dollar (USD) are used interchangeably in daily life, with approximately 80-85% of the economy operating in dollars. This unique "dual currency system" creates a fundamentally different currency risk structure for investors and business people compared to other Asian emerging markets.

Key Economic Indicators

Indicator	Value	Notes
GDP	~$30 billion	~110th globally
Population	~17 million	Young demographic
GDP per Capita	~$1,800	Lower-middle income
Economic Growth Rate	~5-7%	High growth within ASEAN
Dollarization Rate	~80-85%	Extremely high level

Economic Structure Characteristics

Textile/Garment Industry: Core industry accounting for ~70% of exports
Tourism: ~15-20% of GDP (pre-COVID), rapidly recovering
Construction/Real Estate: Active investment centered on Chinese capital
Agriculture: Rice exports, ~30% of labor force engaged
Digital Economy: "Bakong" QR payment spreading

When considering investment in Cambodia, the most important perspective is not "investing in Riel" but "investing in an ASEAN emerging market within the dollar economy zone." The currency risk structure is fundamentally different from other emerging markets.

How the Dual Currency System Works

Cambodia's dual currency system is a unique arrangement rarely seen globally. While Riel is the legal tender, dollars are widely used in actual economic activity.

Currency Usage in Practice

Transaction/Purpose	Primary Currency Used	Notes
Real Estate Transactions	US Dollar	Nearly 100% dollar-denominated
High-Value Consumer Goods	US Dollar	Electronics, vehicles, etc.
Hotels/Restaurants	US Dollar	Tourist-oriented is fully dollarized
Bank Deposits	US Dollar (~95%)	Riel deposits are minimal
Salary Payments	US Dollar	Centered on white-collar workers
Daily Goods/Food	Riel/Dollar Mixed	Small amounts in Riel
Local Markets	Riel	Rural areas Riel-centered
Utilities	Riel	Government encourages Riel

Daily Currency Usage Example

Consider a typical shopping trip at a Phnom Penh supermarket:

Total: $12.75
Payment: $20 bill
Change: $7 and 1,000 Riel (equivalent to 25 cents)

Receiving Riel for the sub-dollar portion of change is common practice. Riel is used for amounts under $1, with both currencies seamlessly coexisting.

Role of the Fixed Rate

The National Bank of Cambodia maintains a de facto fixed exchange rate:

Reference Rate: 1 USD = approximately 4,000-4,100 Riel
Fluctuation Range: Only a few percent over the past 20 years
Intervention: Central bank adjusts through foreign currency buying/selling as needed

History and Current State of Dollarization

Cambodia's dollarization is closely linked to the country's tragic history.

Historical Background of Dollarization

1970s: Pol Pot Regime

The Khmer Rouge regime (1975-1979) abolished the currency system, implementing forced barter economics. The Riel was completely eliminated.

1980s: Currency Reintroduction

Under the Vietnamese-supported new regime, Riel was reintroduced, but credibility was low, with Thai Baht and Vietnamese Dong circulating.

1990s: UN Administration and Dollar Inflows

After the 1991 Paris Peace Accords, UNTAC (UN Transitional Authority in Cambodia) was stationed. International organizations and aid groups brought dollars, rapidly accelerating dollarization.

2000s Onwards: Dollar Economy Established

With increased foreign investment and tourism growth, dollar usage expanded further. The dollar proportion of bank deposits exceeded 90%.

Advantages of Dollarization

Reduced Currency Risk: Lower exchange rate volatility risk for foreign investors
Inflation Control: Dollar linkage prevents excessive local currency issuance
International Transaction Facilitation: Dollar-denominated transactions ease trade and investment
Financial Stability: Reduced currency crisis risk

Disadvantages of Dollarization

Monetary Policy Constraints: Difficult to implement independent monetary easing
Lost Seigniorage: Cannot obtain currency issuance profits
Dollar Outflow Risk: Risk of dollars leaving country during crises
Rural-Urban Gap: Populations with limited dollar access exist

De-dollarization Efforts

The Cambodian government is gradually advancing de-dollarization.

Bakong: Central bank digital currency (CBDC) promoting Riel-denominated payments
Riel Tax Payments: Encouraging Riel for government payments
ATM Riel Support: Expanding Riel withdrawal options
Financial Literacy Education: Promoting Riel usage awareness

De-dollarization is a long-term policy goal, but rapid change would harm economic stability, so it proceeds at a gradual pace. The dollar economy is expected to continue for the foreseeable future.

Exchange Rate Structure and Trends

The Cambodia Riel exchange rate behaves differently from other emerging market currencies.

Exchange Rate Characteristics

Characteristic	Description	Investment Implication
De facto Fixed Rate	Stable at 1 USD = ~4,000 KHR	Low currency volatility risk
Active Central Bank Intervention	Stabilization using foreign reserves	Sharp fluctuations are rare
Abundant Dollar Supply	Dollar inflows from tourism/investment/remittances	Source of stability
Dollar-Denominated Economy	Prices and wages in dollars	Limited Riel importance

Exchange Rate History

2000: ~3,850 KHR/USD
2010: ~4,100 KHR/USD
2015: ~4,050 KHR/USD
2020: ~4,050 KHR/USD
2024: ~4,100 KHR/USD

The rate has been essentially flat for over 20 years. This stability is unseen in other emerging market currencies.

Background of Exchange Stability

Ample Foreign Reserves: Holding over 10 months of imports
Current Account Surplus Tendency: Foreign currency inflows from tourism and remittances
Dollar Economy Self-Adjustment: Dollar-denominated transactions suppress Riel demand
Prudent Central Bank Policy: Restrained currency issuance

Factors That Could Affect Riel

Factors that could cause Riel fluctuations include:

US Interest Rate Increases: Increased dollar demand creates Riel weakness pressure
Tourism Recovery/Slowdown: Affects dollar inflow volume
Chinese Investment Fluctuations: Real estate investment changes
Political Stability: Regime transition period risks
Accelerated De-dollarization Policy: Changes in Riel demand

Implications for Business and Investment

Cambodia's dual currency system creates unique opportunities and risks for business and investment.

Advantages for Investors

1. Reduced Currency Risk

Investment in other ASEAN countries always carries local currency depreciation risk. However, in Cambodia, both investment and returns are typically dollar-denominated, significantly reducing currency risk.

2. Dollar-Denominated Returns

Real estate rental income and business profits can be received in dollars, facilitating asset planning in yen or dollar terms.

3. Dollar Deposit Interest

Cambodian banks may offer approximately 3-6% annual interest on dollar deposits (as of 2024).

Disadvantages and Risks for Investors

1. Strong Dollar Impact

As a dollar economy, dollar strength reduces export competitiveness. Investment in export sectors like textiles requires caution.

2. De-dollarization Risk

If the government accelerates de-dollarization in the future, handling of dollar-denominated assets may change.

3. Liquidity Risk

Cambodia's financial markets are underdeveloped, with constraints on large dollar transactions and rapid capital transfers.

Main Investment Targets

Investment Target	Currency	Characteristics
Real Estate (Phnom Penh)	US Dollar	Condominium investment popular
Bank Deposits	US Dollar	High interest but no deposit insurance
Cambodian Stocks	Riel/Dollar	Cambodia Securities Exchange (CSX)
Business Investment	US Dollar	Manufacturing, services
Microfinance	US Dollar	High yield but high risk

Risk Factors and Considerations

Key Risks

1. Political Risk

Cambodia operates under de facto single-party rule, with regime transition and policy change risks. The 2023 general election saw the ruling party win overwhelmingly, with power transfer from Prime Minister Hun Sen to his son, the new Prime Minister Hun Manet.

2. Legal System Risk

Challenges exist regarding rule of law, contract enforceability, and foreign investor rights protection. For real estate investment, land ownership issues require attention (foreigners cannot own land, only upper floors of condominiums).

3. Financial System Risk

Deposit protection systems are undeveloped, offering limited protection in case of bank failure. Microfinance institution over-lending issues are also noted.

4. China Dependency Risk

Chinese investment has surged recently, with high dependency on Chinese capital for casino and real estate development. Chinese economic slowdown has direct impacts.

5. Rising Labor Cost Risk

Minimum wages are rising annually, potentially reducing garment industry competitiveness.

6. Dollar Procurement Risk

During global dollar shortages or financial crises, Cambodia's dollar supply may also be affected.

Practical Investment Approach

Investment Instrument Selection

1. Real Estate Investment

Condominiums in Phnom Penh, Siem Reap
Foreigners can own strata title above 2nd floor
Dollar-denominated rental income (yields around 5-8%)
Note: Land ownership prohibited, legal risks exist

2. Bank Deposits

Dollar time deposits (approximately 3-6% annual interest)
Major banks: ACLEDA Bank, ABA Bank, Canadia Bank
Note: Deposit protection system undeveloped

3. Cambodia Securities Exchange (CSX)

Limited listed companies (approximately 10)
Low liquidity
Foreign investors can open accounts

4. Microfinance Investment

High yield but high risk
Investable through some platforms
Socially responsible investment (SRI) aspect

Unique Points of Cambodia Investment

The essence of Cambodia investment is not "investing in Riel" but "investing in an ASEAN emerging market within the dollar economy zone." Currency risk concentrates on dollar/yen fluctuations.

Investment Decision Framework

Signals to Consider Investing (Positive)

Tourism recovery and growth
Increasing foreign direct investment
Infrastructure development progress
Digital economy development
Continued political stability

Signals for Caution (Negative)

Political destabilization
Sharp decline in Chinese investment
Banking sector problems
Rapid de-dollarization policy
Frequent labor disputes

Position Size and Diversification

Recommended Allocation: Consider as part of emerging market investment allocation
Portfolio Ratio: Maximum 1-3% of total
Diversification: Spread with other ASEAN countries (Vietnam, Thailand, etc.)

Key Information Sources

National Bank of Cambodia: Central bank, monetary policy, statistics
Council for the Development of Cambodia: Investment information
Phnom Penh Post: English news
Khmer Times: English news
Cambodia Securities Exchange: Stock market information
Embassy of Japan in Cambodia: Investment guides, safety information

The Cambodia Riel has characteristics different from other emerging market currencies due to high dollarization. It should be understood as "investing in an ASEAN emerging market in the dollar economy zone" rather than "investing in Riel." While currency risk is limited, sufficient attention to legal systems, politics, and financial system risks is necessary. While utilizing dollar-denominated investment opportunities like real estate and dollar deposits, consider carefully as part of an emerging market investment strategy.