Introduction
The Cambodian riel (KHR) is often regarded as a stable currency by observers, especially in recent decades. This stability refers to the riel’s relatively steady exchange rate and controlled inflation, which have persisted despite Cambodia’s unique monetary environment. A key context is Cambodia’s partial dollarization – the widespread use of the US dollar alongside the riel – which has both underpinned and complicated the riel’s stability. In this report, we examine why the Khmer riel is considered stable, looking at its exchange rate trends, inflation record, macroeconomic conditions, the policies of the National Bank of Cambodia (NBC), and structural or historical factors. We also compare the riel’s stability with other regional currencies to provide a broader perspective.
Historical and Structural Background
Cambodia’s monetary history has shaped the riel’s current stability. The first riel was introduced in 1955 but was abolished during the Khmer Rouge regime (1975–1979), which left the country without a currency . After the regime’s fall, a new riel was reintroduced in 1980. Initially, confidence in the riel was low – the government even gave away new notes to encourage adoption in a devastated economy . At that time, the riel was pegged at 4 riels per 1 US dollar. However, with severe economic hardships and reliance on foreign aid (often in USD), the riel’s value plunged: from 4 KHR/USD in 1980 to around 4,000 KHR/USD by the early 2000s . This massive devaluation in the 1980s and early 1990s eroded public trust in the riel. Many Cambodians turned to foreign currencies – chiefly the US dollar, but also Thai baht near border areas – as more reliable stores of value . By the early 1990s, Cambodia had effectively become a dual-currency (or highly dollarized) economy, a structural legacy that persists today.
Despite this rocky start, the riel’s stability improved markedly from the late 1990s onward. With the end of conflict and the onset of political stability and economic reforms, Cambodia experienced rapid growth and better monetary management. Since the late 1990s, the riel has been maintained at an unofficially fixed rate of roughly 4,000–4,100 KHR per 1 USD, with only minor fluctuations . In other words, for over two decades 1 US dollar ≈ 4,050 riel, and this parity has barely changed. In fact, economists note that since the early 1990s the riel’s average depreciation has been only about 2% per year, a remarkably low rate for a developing country . Such stability is noteworthy given Cambodia’s history – it reflects deliberate policy choices and external anchors (like the dollar) that have kept the riel steady.
Exchange Rate Trends of the Riel
One of the clearest indicators of the riel’s stability is its exchange rate trend. As mentioned, the riel settled around ~4000 KHR to 1 USD by the early 2000s and has remained in that vicinity into the 2020s . Year-to-year changes in the USD/KHR rate have typically been very small, often within a ±2% band . For example, the National Bank of Cambodia reported the average exchange rate was about 4,055 riels per USD in a recent year, compared to 4,051 riels the previous year – effectively no significant change . This long-term quasi-peg to the dollar means the riel’s external value is highly predictable. Cambodians commonly quote an easy figure of “4000 riel = $1” in daily life , underscoring how ingrained the stable rate is. The NBC has at times explicitly targeted exchange-rate stability: officials describe maintaining the riel–USD rate as a top priority, to preserve public confidence and purchasing power .
Several factors help explain this steady exchange rate. Active intervention by the NBC is one. The central bank frequently buys or sells US dollars to prevent excessive riel fluctuations. For instance, in 2021 the NBC injected $554 million to purchase riel on the market, shoring up the currency’s value . In 2023, it similarly sold nearly $140 million USD (through auctions with banks and money changers) to stabilize the riel’s price . These interventions supply or absorb riel liquidity to keep the exchange rate in a narrow range. Thanks to such measures, even during periods of global volatility, the riel has avoided sharp devaluation. The NBC governor has noted that Cambodia has managed to keep the riel’s exchange rate stable within a 2% fluctuation margin over extended periods . In effect, the riel behaves almost like a fixed currency tied to the US dollar, which greatly contributes to the perception of stability.
Inflation Control and Macroeconomic Conditions
Exchange rate stability has gone hand-in-hand with low and stable inflation in Cambodia. By keeping the riel firmly linked to the US dollar, Cambodia has been able to import monetary stability – domestic prices of traded goods are not as prone to spikes from currency depreciation. The NBC explicitly uses the exchange rate as a nominal anchor to control inflation . Chea Serey, the former NBC Director General (now Governor), explained that with limited monetary policy tools in a dollarized system, the central bank’s purchase of US dollars (injecting riel liquidity) is used to “maintain a stable exchange rate and to minimise the impacts of inflation.” A stable riel means that prices for imports (fuel, food, consumer goods) don’t suddenly surge due to currency loss. This has helped keep Cambodia’s inflation generally in the single digits.
Over the past decade, inflation in Cambodia has been moderate, often around 2–4% annually, aside from temporary upticks during global price shocks. For example, inflation was about 5.3% in 2022 amid worldwide commodity spikes, but eased back down to roughly 2–3% in 2023 and under 1% by 2024 . The NBC projects inflation will remain around 2.6% in 2025, in line with its historical average . These levels are relatively low for an emerging economy, reflecting prudent fiscal management and the price-stabilizing effect of a steady currency. Additionally, strong GDP growth and stable macroeconomic conditions have supported the riel. Cambodia averaged about 7% annual GDP growth for much of the 2000s and 2010s , one of the highest growth rates in the region. This growth, coupled with political stability, has boosted public and investor confidence, making drastic currency moves unnecessary. Robust foreign investment, export earnings (e.g. from garments and agriculture), and tourism inflows have generally kept Cambodia’s balance of payments healthy, allowing the central bank to build respectable foreign exchange reserves (e.g. ~$7.7 billion in 2017, enough to cover 6 months of imports ). These reserves give NBC ammunition to defend the riel’s value when needed. In sum, a virtuous cycle has existed: a stable riel contributes to low inflation and confidence, and in turn a growing, stable economy makes it easier to keep the riel stable.
Partial Dollarization and Its Impact
One cannot discuss the riel’s stability without addressing Cambodia’s partial dollarization. The economy operates on a dual-currency system, where the US dollar circulates extensively alongside the riel. In fact, Cambodia has been one of the most dollarized countries in Asia for decades. By the mid-2010s, roughly 80% or more of money in circulation (by value) was in US dollars . In 2017, the NBC estimated that about 83% of currency in the economy was USD , with riel accounting for the remainder. Dollars are commonly used for large or urban transactions (salaries, real estate, upscale retail), while the riel is used for smaller purchases, rural markets, and as fractional change for dollars . Even some government institutions and NGOs pay in dollars, illustrating how ingrained foreign currency use is .
This heavy dollarization is a double-edged sword for stability. On one hand, reliance on the US dollar has anchored Cambodia’s price level. People trust the dollar’s value, so confidence in the monetary system was maintained even when the riel was reintroduced and initially volatile. The presence of the dollar helped prevent runaway inflation, because the government could not easily print dollars and had to maintain riel convertibility at a stable rate . Essentially, the US Fed’s stable policy “imported” credibility to Cambodia. This is a major reason the riel has been stable – it’s effectively pegged (informally) to a globally stable currency (USD). The NBC’s task has been to manage the peg and ensure an adequate supply of dollars/riel so that the exchange rate doesn’t stray far from the target. Indeed, dollarization has meant Cambodia’s inflation rate and currency value tracked closely with US conditions (plus global commodity trends), rather than experiencing the wild swings seen in some less dollarized developing economies.
On the other hand, partial dollarization limits the National Bank’s monetary policy tools. With most transactions in USD, the NBC cannot use typical levers like domestic interest rates or riel money supply expansion without risking conversion out of riel. As Chea Serey noted, the central bank had “extremely limited options to guide its own monetary policy” because of the dominance of foreign currency . This is why NBC resorts primarily to foreign exchange interventions to influence the economy – it intervenes to keep the exchange rate stable and lets that stability anchor inflation . Another downside is that seigniorage (profit from issuing currency) largely goes to the US (since USD notes are issued by the Fed) rather than to Cambodia, and the NBC can’t act as a lender of last resort in USD easily. Additionally, having two currencies imposes transaction costs and complexity in the economy, and the widespread dollar usage reflects an ongoing lack of full confidence in the riel despite its stability . In summary, Cambodia’s partial dollarization has helped stabilize prices and the exchange rate, but at the expense of monetary autonomy.
Recognizing these issues, the Cambodian authorities have been gradually pushing for “rielization” – increasing the use of Khmer riel in the economy – without disrupting stability. For instance, the government requires that all taxes and public utility bills be paid in riel (to create demand for the local currency) . The NBC has introduced a base interest rate for riel and other instruments to develop a riel money market . It also mandated banks and microfinance institutions to hold at least 10% of their loan portfolio in riel by 2019 , to encourage lending and deposits in KHR. These measures aim to slowly unwind dollarization. The logic is that increased riel usage will strengthen monetary policy effectiveness and economic resilience . NBC officials argue that using more riel makes the economy “less vulnerable to external shocks” and fosters “financial independence” . Notably, even during dedollarization efforts, NBC has been careful to maintain exchange rate stability – they know confidence in the riel hinges on it remaining a reliable store of value. Governor Chea Serey has emphasized that “expanding the use of riel is crucial to reduce the impact of external factors on prices, strengthen monetary policy, and stabilize the economy” . Thus, partial dollarization is both a cause and an effect of riel stability: it originally contributed to stability, and now the achieved stability is being used as a foundation to rebuild faith in the riel for wider use.
National Bank of Cambodia’s Policies
The National Bank of Cambodia has played a central role in the riel’s stability through its policies and actions. The NBC’s primary mandate is to maintain price stability, and given the dollarized context, that has largely meant keeping the riel’s exchange rate stable and inflation low . Key NBC policies and measures include:
- Managed Exchange Rate Policy: The NBC practices a de facto managed float (or crawl) against the US dollar. While no official peg is publicly declared, in practice the bank intervenes whenever the riel deviates from its desired band (usually around 4,000 KHR/USD). NBC has conducted frequent foreign exchange auctions and direct interventions, using its reserves to buy or sell riel. For example, in 2017 the central bank intervened 65 times in six months, purchasing a total of $479 million (selling riel) at an average rate of 4,040 KHR/USD to prop up the riel’s value . Similarly, as noted earlier, hundreds of millions of USD have been deployed in other years to smooth out volatility . These actions signal to the market that the NBC will not let the riel slide dramatically, which deters speculation and stabilizes expectations.
- Sterilization and Money Supply Control: When the NBC intervenes by buying riel (selling USD), it effectively injects riel liquidity; conversely, selling riel (buying USD) absorbs liquidity. The NBC carefully manages the domestic money supply to avoid inflationary spikes. According to NBC reports, it strives to keep money supply growth in line with economic growth. In one NBC publication, officials noted they “maintained the money supply at an appropriate level” which contributed to price stability . In highly dollarized Cambodia, the NBC’s direct lending or open-market operations in riel are limited, but it has used tools like reserve requirements and refinancing facilities in riel to influence credit conditions at the margin. It’s worth noting that a large portion of additional riel injected via interventions often gets reabsorbed by banks (e.g., 60% of extra riel from interventions went into bank reserves in one report ), preventing an overflow of cash chasing goods. This indicates prudent liquidity management accompanying the exchange rate policy.
- Developing Riel-based Instruments: NBC has introduced and promoted riel-denominated financial products to make holding riel more attractive. These include government securities or NBC’s own negotiable certificates of deposit in riel, and encouraging banks to offer savings accounts in riel with competitive interest rates. NBC has also started publishing a reference interest rate for riel (the ‘National Bank’s base interest rate’) to guide lending rates in local currency . By fostering a riel money market, the NBC aims to gradually give itself more conventional monetary policy tools (like interest rate adjustments) in the future, which could further underpin stability.
- Regulatory Measures for Dedollarization: As mentioned, policies like requiring a minimum share of loans in riel and mandating riel for certain payments (taxes, utilities) have been implemented. The NBC also engages in public outreach and education to boost confidence in the riel. They celebrate an annual “Day of the Riel” and conduct campaigns explaining the benefits of using local currency . NBC’s leadership often publicly assures that the riel’s purchasing power is being protected and encourages businesses to invoice in riel. These measures, while gradual, are meant to solidify the riel’s role and thereby structurally support its stability in the long run.
Thus, NBC’s policies combine active exchange rate stabilization, cautious monetary expansion, and strategic efforts to increase riel usage. This multi-pronged approach has been credited with maintaining confidence. As one economic adviser noted, stable exchange and inflation rates are indicators of successful policy, which in turn “allows for greater use of the local currency, giving the central bank more control” . The NBC itself highlights that keeping the riel stable (and below 2% depreciation) has “mainly contributed to price stability and created a conducive environment for growth” . In short, the NBC’s steady hand and policy consistency have been pivotal in why the riel is viewed as a stable currency today.
Broader Macroeconomic Conditions
Beyond the central bank and dollarization, Cambodia’s broader macroeconomic context has reinforced riel stability. Political stability since the late 1990s under a long-standing government has provided a predictable environment for economic policy (albeit with noted democratic deficits). This political continuity meant no abrupt regime changes that might trigger a loss of confidence or irresponsible monetary moves (contrast this with some countries where political turmoil led to currency crises). Moreover, Cambodia’s integration into the global economy, through garments exports, tourism, and foreign direct investment (FDI), has generally ensured steady inflows of foreign currency. For many years, Cambodia ran current account deficits (importing more than exporting) but these were financed by aid and FDI, preventing balance-of-payments crises. The foreign aid and donor support (from institutions and countries) since the 1990s also buoyed the riel by providing a backstop of dollars in the economy. In essence, as long as foreign assistance and investment kept coming, Cambodia could sustain high import levels and growth without pressure on the riel. This external support, coupled with NBC’s reserve accumulation, underpinned the riel’s value.
Additionally, Cambodia’s fiscal policy has been relatively conservative. The government usually avoided monetizing deficits; instead, budgets were partly donor-funded and public debt remained moderate. This meant less temptation to print riel for financing, thus preserving the currency’s stability. Structural economic changes also helped – Cambodia’s economy diversified from being solely agriculture-based to include industry and services, which provided new sources of growth and foreign exchange. A diversifying, growing economy tends to support a stable currency by improving fundamentals. However, it’s worth noting that Cambodia still faces structural challenges (like a narrow export base, reliance on imports, and productivity issues) . These could affect future stability if not managed, but so far a combination of prudent macro management and the quasi-peg to the dollar has kept the riel on an even keel.
Comparisons with Regional Currencies
The Khmer riel’s stability can be contextualized by comparing it to the currencies of neighboring countries in Southeast Asia. Each country’s experience differs based on their monetary policy regimes and economic conditions:
- Thai Baht (THB): Thailand’s baht is a freely traded currency with an inflation-targeting central bank. Over the last 20 years, the baht has been relatively stable in inflation (around 1-3%) and often appreciated against the dollar due to strong exports and tourism. However, it is not pegged – its value fluctuates with market forces and global investor sentiment. In 1997, the baht famously crashed during the Asian Financial Crisis (devaluing by over 50%), an episode Cambodia largely avoided because the riel was not deeply integrated into global capital markets then. In recent years, the baht floats roughly in the range of 30–36 THB per USD, showing more short-term volatility than the riel (which is held near 4100 KHR/USD). Unlike the riel’s externally anchored stability, the baht’s stability comes from Thailand’s stronger institutions and larger economy. Both countries enjoy low inflation, but Cambodia achieves it by a de facto USD peg, whereas Thailand uses interest rate policy.
- Vietnamese Đồng (VND): Vietnam’s đồng has a history of high inflation and multiple devaluations in the late 20th century (Vietnam saw extreme inflation in the 1980s). Since the Đổi Mới reforms, inflation has been tamed to single digits, and the State Bank of Vietnam manages the đồng in a crawling peg regime. The đồng does gradually depreciate against the dollar most years, reflecting inflation differentials and a strategy to support exporters. For instance, a decade ago the rate was around 20,000 VND per USD, and by 2025 it is about 23,000–24,000 VND per USD – a slow depreciation over time rather than a fixed rate. Vietnam also had some degree of dollarization in the past, but the government has actively restricted USD use domestically, forcing more transactions into đồng. Compared to the riel, the đồng’s exchange rate is less flat: small periodic devaluations are common as Vietnam adjusts to market pressures (often within a managed band). However, Vietnam’s inflation (~3-4% in recent years) is not far off Cambodia’s, indicating both countries have achieved price stability . The key difference is that Vietnam retains more monetary policy independence (at the cost of a drifting exchange rate), whereas Cambodia sacrifices that independence to keep a hard stability of the currency’s value.
- Lao Kip (LAK): Laos offers a cautionary contrast. The Lao kip has historically been much less stable than the riel. Laos’s economy is also partially dollarized (and uses Thai baht), but it has faced severe imbalances recently. In 2022, Laos experienced a currency crisis – the kip lost about half its value against the dollar and Thai baht in a short time . Inflation in Laos then soared above 30% in 2023, a stark spike that hurt its economy . This instability stemmed from factors like high public debt (especially to foreign creditors), low reserves, and a small export base – when global conditions tightened, confidence in the kip fell sharply. By contrast, Cambodia avoided such a scenario: the riel’s 2% annual depreciation average is a world apart from the kip’s sudden 50% drop . Even during global inflationary pressures (2021–2022), the riel held near its peg and Cambodia’s inflation peaked at ~5% – far below Laos’s 30%+. This comparison highlights how Cambodia’s policy of stabilizing the riel (and having USD as a safety valve) shielded it from the kind of currency free-fall Laos experienced. Another neighbor, Myanmar’s kyat, has also seen extreme volatility (especially after 2021’s coup), again underlining that the riel’s stability is an outlier in a region where political or fiscal troubles often spill into currency markets.
- Other ASEAN Currencies: Malaysia’s ringgit and Indonesia’s rupiah both float with market forces and have had episodes of sharp moves (e.g. both lost value in 1997–98 and again during the 2013 “taper tantrum”). However, in the 2010s they maintained moderate inflation and more gradual exchange rate changes. The Philippine peso similarly floats and can swing 5-10% in a year relative to the dollar. In comparison, the riel’s year-to-year change vs USD is negligible (often under 1-2%). One could argue the Cambodian riel has been one of the most stable emerging-market currencies in terms of nominal exchange rate in the past two decades. But that stability is not due to a large, diversified economy or sophisticated monetary policy (as is partly the case for, say, the Singapore dollar); rather, it is achieved through anchoring to another currency and careful management around that anchor.
In summary, Cambodia’s riel stands out for its steadiness. Neighbors like Vietnam and Thailand have achieved low inflation too, but their currencies fluctuate more freely against the dollar. Others like Laos have struggled with both inflation and currency stability. Cambodia took a path of stability via dollarization and a tight exchange regime, which avoided the dramatic swings seen elsewhere at the cost of policy flexibility. This has been largely successful in the sense that the riel has not seen a crisis or runaway inflation in recent memory, unlike some regional counterparts.
Conclusion
The Khmer riel’s stability is the result of intersecting factors. Historically, Cambodia’s traumatic experience with hyperinflation and currency collapse in the 1980s led to pervasive dollarization – a structural factor that subsequently kept the riel stable (by tethering it to the US dollar). Over time, the National Bank of Cambodia built on this by explicitly maintaining a stable exchange rate through interventions and conservative monetary policy, effectively using the exchange rate as a tool to control inflation . Cambodia’s macroeconomic environment – characterized by high growth, political stability, and sustained inflows of foreign capital – provided a supportive backdrop for a stable currency, as did prudent fiscal management. Inflation has been kept in check, reinforcing confidence in the riel’s purchasing power.
Partial dollarization emerges as both a cause and an ongoing component of the riel’s stability. The widespread use of USD initially gave the economy a stable unit of account and helped quash high inflation. Today, even as authorities encourage more use of riel, the US dollar’s presence means that public trust remains high – people are not forced to hold a volatile local currency, because the riel is in fact not volatile. In other words, credibility has been gradually transferred to the riel: it is now seen as stable in its own right (albeit under the shadow of the dollar’s stability). The NBC’s policies aim to carefully nurture this credibility. By keeping the riel stable and slowly increasing its usage, the hope is to eventually have a fully functional national currency that can stand on its own without extensive dollar backing.
Comparatively, Cambodia’s approach has spared it from the currency upheavals that some neighbors faced, but it also means Cambodia has yet to test the riel in a completely free market context. For now, however, the riel’s stability is unquestionable in everyday terms – prices in riel barely budge against the dollar year to year, and inflation is modest. This stability has contributed to a predictable business climate and protected Cambodians’ purchasing power . It is a product of deliberate policy (exchange rate targeting by the NBC), the discipline imposed by dollarization, and favorable macroeconomic conditions. As Cambodia moves forward, a key challenge will be to maintain this stability while gradually untethering from the dollar. But understanding why the riel has been stable so far – a blend of historical lessons, prudent monetary policy, and the anchor of dollarization – provides insight into how Cambodia can manage that transition and how its currency stability stacks up against its regional peers.
Sources: The analysis above is based on reports and data from the National Bank of Cambodia, news outlets, and research. For example, NBC publications note that the riel’s exchange rate has been kept around 4,050 KHR per USD with minimal fluctuation . Cambodian economic press highlights NBC’s interventions (e.g. hundreds of millions of USD used to stabilize the riel) and the link between exchange-rate stability and low inflation . The extent of dollarization (around 80% USD usage) and its historical causes are documented by both NBC officials and independent analyses . Comparative context is drawn from regional data – for instance, the Lao kip’s sharp depreciation and 30% inflation in recent years contrast with Cambodia’s ~2-5% inflation and steady currency . These sources collectively illustrate why the Khmer riel is seen as stable and how that stability has been achieved and maintained.