Payment Dollarization and Foreign Exchange Market Development in Cambodia: The Role of Money Changers

Koji Kubo, Vichet Sam and Yuthan Chea

No 197, Working Papers from JICA Research Institute

Abstract: Cambodia's foreign exchange market is cash-based, overshadowed by the retail transactions of money changers. Based on the original dataset of the enterprise survey on uses of currency exchange services, we elucidate the structure of the foreign exchange market and investigate how payment dollarization is related to the prosperity of money changers. The empirical evidence indicates that firms in the domestic business sector confront currency mismatch situations that mean they have to undertake currency exchange. Besides, cash transactions are the most common means of payment in the country. The combination of prevalent currency mismatch and cash-based transactions is considered to give rise to retail currency exchange transactions with which money changers are more compatible than banks are. The empirical results also suggest that the recent regulation to promote bank lending in Khmer Riels will boost banks' currency exchange services, a situation conducive to foreign exchange market development.

Keywords: Cash-based transaction; Money changer; Currency mismatch; Payment dollarization; Cambodia (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-mon, nep-pay and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:jic:wpaper:197

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