Analysing the effects of dollarization in cambodia

Dollarization occurs when a state uses US Dollar or other currency alternatively of or along with local currency. The image of dollarization can be as follow: utilizing dollar for bank Deposit, paying debt, purchasing goods and service, mensurating national budget. 1 There are three types of dollarization: functionary, semi-official, and unofficial. Official dollarization occurs when a state usage dollar as the legal currency alternatively of domestic currency. For illustration, Panama is the dominant official dollarization adoptive parent. It has no domestic currency published at all. The 2nd type is Semi-official dollarization. Some states in the universe use US dollar and domestic currency at the same clip ; in other word, they use bimonetary systems. This allows people to do sedimentation in US dollar, do some dealing, but it merely act as 2nd function in paying pay, revenue enhancement, electricity, and day-to-day disbursal. Adopting this system, the cardinal bank can put its ain pecuniary policy. Cambodia, Lao, and Haiti are the illustrations of semi-dollarized states. Third, in unofficial dollarization, some states ‘ bulk wealth is hold in foreign currency and people can utilize US dollar replacing domestic currency either lawfully or illicitly. In short, when a state uses other currency beside it ain to replace the three maps of the pecuniary, it is theoretically that the state has been dollarized officially, semi-formally or informally.

2. World Dollarization Implication

There are two chief facets of dollarization. Dollarization is the topic of non merely the economic or besides of Politic. Economists think that money is merely merely public goods which consist of three maps: agencies of exchange, shop value and unit of history and its intent is merely to ease the economic dealing. Dollarization is the symbol of the US power influence state money. The US assistance for the Reconstruction of Western Europe after the World War II and many other states, the function of US in universe phase became more of import. Then after the abolition of Gold Standard in 1971, the US dollar besides became the chief currency in the universe. Because of daze of fiscal crisis, some states adopt dollar US to cut down the hazard and create stableness. For, those states following dollarization is merely another term for fixed exchange rate compared to US dollar without much effort2. Comparing to developing state currency, it is more dependable, valuable and profitable in making trade, hive awaying value, and doing dealing. However, some states use other currency with similar quality such as Germany grade, Nipponese hankerings and now Euro in Europe.

Beside economic value, money contains buying power which is the bosom of politic. The power has distributed to the Godhead, the money changer, and particularly the accountant. Therefore, distribution of money does non merely make hierarchy of people but it besides creates hierarchy in the world.3 However, for some other states dollarization is the bosom of political involvement. For case, utilizing US dollar in Latin America implies its dependance on US and besides shows its inferior. East Timor adopt US dollar as its official currency to forestall Indonesian influence. In short, dollarization can be characterize into both economic and political relations. Through both means the dollarization is going new influence of US in the universe.

3. Dollarization in Cambodia Dollarization

Harmonizing to IMF the proportion of Dollar in economic circulation is 90 % which is apathetic for a decennary ago. In an article dollarization in Cambodia, and policy options on the manner frontward, Menon ( 1998 ) concluded that “ aˆ¦dollarization is non the job, but is simply symptom. The job ( or the cause ) is a deficiency of assurance in the riel, whilst the symptom ( or the consequence ) is the usage of another currency such as the US dollar.4 ” Dollarization in Cambodia is the consequence of both past and present economic and politic position. Dollarization in Cambodia is the direct bequest of the devastation of economic and fiscal

Institutions after the 1970s, economic misdirection in the 1980s, and the big influxs of US Dollars during the UNTAC period in the early 1990s5.Today, in Cambodia the US dollar still serves all three maps of money: it is widely used as a medium of exchange, shop of wealth, and unit of history. The fact that dollarization is non the existent job but it is the deficiency confident in riel can be rooted every bit far as the Khmer Rouge Regime. In 1975 the revolution of Khmer Rouge took over the Cambodia politic and economic system. influenced by the Marxism, to do Cambodia a communist state the Pol Pot abolish riel currency every bit good as halt the national bank operation and therefore hope to make full the spread of the rich and the hapless. Kampuchean people lived in adversity without any personal concern activity, any mean of shop value or exchange, on private ownership. Fortunately, in 1979 the population was saved ; nevertheless, this state returned to the province of traditional economic system utilizing swap system. Then, non until 1980 did riel currency appear once more. Experiencing daze in 1975 when their salvaging money became garbages in lone yearss, Kampuchean people subsequently preferred to utilize other agencies such as gold, Ag, jewellery for exchange. Most people used riel currency for merely little dealing and non over 50 $ salvaging. When the dollar was introduced once more in 1990s, it is by and large accepted along with old gold and silver money. As much 1.7 as US million dollars has poured in Cambodia through UN peace maintaining activity, the UNTAC6. This state of affairs paved the ways of Kampuchean economic system depend on the stronger money US dollar and Cambodia was easy the most extremely dollarized state in Asia, and one of the highest in the universe The portion of dollars in currency Circulation is highest in Cambodia, estimated at about 90 per centum. Nowadays Dollar still plays major function in concern dealing, and the major sedimentation in bank. The being of dollarization in Cambodia is besides expected to last. Another ground for Cambodia in accepting dollarization is merely a force per unit area of its state as a developing economic system. Even though Cambodia has done three decennary or retracing the economic system, cut downing political and economic uncertainness, there are more actions to be done to acquire out of dollarization. While growing and political uncertainness greatly has been reduced, Cambodia remains a low income state with important inequality and poorness, and some grade of political uncertainness remains. For illustration, political convulsion in 1997 combined with Asiatic fiscal crisis would hold been more even more baleful to Cambodia if it had non been dollarized.

4. Decision

As many provinces have job in both economic and politic stableness and weak pecuniary system people will see utilizing another currency which is more stable and valuable in most state of affairs. In the serious instance some states do non hold ain currency at all but US dollar. As the US has strong pecuniary government its currency impress those developing provinces to utilize US dollar ; hence, US may somewhat influence those province in both economic and politic. Some provinces may be dollarized in order to make fiscal stableness ; nevertheless, they are diffident what can US make with dollarization for political relations. Cambodia is non the exclusion. Kampuchean people draw confident in riel.

since 1970s and had been attracted to new currency US dollar in since 1990s. Until now, the grade of dollarization has changed merely a small. Dollarization was injected so bit by bit that people get accustomed to it despite the authorities attempt to de-dollarize in the last decennary. Cambodia economic and politic jobs still fuel dollarization being. Following issue is to discourse the advantage and disadvantage in Cambodia.

MC2: Situation of Dollarization in Cambodia Today and Its Cost and Benefit

After the two decennary of United Nation Transnational Authority in Cambodia ( UNTAC ) operated peace maintaining activity and introduce dollarization in Cambodia, with high economic public presentation with mean two figures GDP growing and considerable political stableness Cambodia should hold come out of dollarization already. However, Cambodia ‘s economic system is still extremely and progressively dollarized which urge the authorities to critically see whether to de-dollarize by comparing its cost and benefit.

The position of Cambodia dollarization today is non far different from the 1990s1. The dollar still serves three maps in this economic system: making dealing, hive awaying value and being used as unit of history. The hard currency dollar in circulation in Cambodia is 90 % of all value of dealing which is similar as a decennary ago. Dollar has been widely usage for private sector pay payment, medium of international trade and besides buy big value merchandises. Furthermore, dollars besides dominate the currency sedimentation as hive awaying value instrument in Cambodia. Harmonizing to the National Bank, the foreign currency sedimentation in wide money ( M2 ) is accounted for 75 % in 2006 increasing from 54 % in 1998. Furthermore, 97 % of bank sedimentation is in term of dollar. The recent addition in dollarization is the consequence of two chief points the higher economic growing and recent political stableness has contribute to more dollarization. When the investor think Cambodia is a good topographic point to put they will shoot more dollar investing. In add-on, the unfastened trade economic system besides allows Cambodia to make more trade with other states utilizing dollar as medium of international trade exchange.

Long before this happen the issue of dollarization has been discussed on cost and benefit but at this clip it is even more critical to calculate out that the cost of dollarization is more than benefit in Cambodia2. The benefit of dollarization in Cambodia can be promoting salvaging, forestalling capital flight, supplying low hazard of currency and exchange rate devaluation. First, the dollarization increasing salvaging when there is a better currency that is more dependable, hence, people will be given to salvage in the bank in dollar to increase their wealth every bit good as lubricate the economic system. Second, this besides prevent hot money go out Cambodia in a short clip of return from investing because investor still lodge money in local bank and reassign to their fatherland at any clip when there is high part of dollar sedimentation in the bank. Last but non least, dollarization provides security from the hazard of currency devaluation and exchange rate depreciation. When the local money face rising prices or depreciation the dollar holder will non worry about the value of plus they hold in dollar. On the other manus, those benefits are small comparing to cost of dollarization. First of all, riel is the national symbol of provinces sovereignty so utilizing dollar is truly affect sovereignty and national individuality. Second, When Cambodia use dollar as dominate to riel currency, the national symbol has been eroded because the people do non swear their ain authorities. Alternatively of acquire easy affected by local rising prices, the dollar holder get easy affect by dollar instability particularly in recent old ages. Therefore, it means that Cambodia is slightly dependance on the US federal pecuniary policy. Finally, dollarization do local pecuniary policy less effectual, in other word, the cardinal bank can non utilize its ain currency to to the full stabilise monetary value and economic system. When authorities want to publish more money it will non increase much in the economic system because most of dealing done by dollar and the authorities besides can non command the involvement rate since the most sedimentation is in dollar non riel. Government besides can non acquire rising prices revenue enhancement ( publish money to finance short term shortage but allow travel the rising prices ) to finance the authorities budget particularly in difficult time.3 Being unable to utilize rising prices revenue enhancement or seignior age to back up exigency needs the authorities of Cambodia is estimate to loss seignior age to be $ 682 million at the terminal of 2004, with an extra $ 61 million lost yearly. and particularly in the instance of paying the armed forces, the Barry Eichengreen ( 1994 ) : “ Money can be printed to pay soldiers, to buy equipage, and to subvention the other costs of a war of national defence without holding to wait for revenue enhancement returns to be filed or for a foreign loan to be extended. ” As the province sovereignty and being

able to utilize ain policy is really of import the cost load by dollarization above have already exceed the benefit. Thus it is clip for Kampuchean authorities to acquire more attempt in de-dollarized campaigned despite the job of deficiency of both committedness and capacity. In short, even though the economic system and politic of Cambodia has improved the dollarization has non been eliminated but it increases because of the more free market mechanism. However, dollarization has impose more cost such as impeding Cambodia from utilizing its ain pecuniary policy, gnawing national sovereignty and being non able to finance authorities budget shortage which is far more important that the benefit such as making monetary value stableness, promoting save and detering capital flight. This is the high clip for Cambodia authorities to react to those issues. Cambodia can non remain aside from dollarization as it shows the higher degree. The Cambodia authorities has to demo its committedness and strengthen capacity to combated dollarization either locally or regionally.

MC # 3: Policy Option for De-dollarization in Cambodia

The authorities of Cambodia has realized that the current state of affairs of dollarization in

Cambodia has higher cost than benefit. The cost is that dollarization has weakened domestic

pecuniary policy capacity to pull strings the fiscal and pecuniary system while the benefit has

gone to monetary value stableness and trade and investing integrating. The Kampuchean authorities has ;

hence, allowed the side consequence of US federal policy to act upon its economic system for a long clip

either good or bad. Therefore, it is high clip for Cambodia to beef up de-dollarization. There are

two chief processs in de-dollarization which are domestic policy and regional policy.

However, this paper will cover merely the possibility of policy option done by the Government of

Cambodia entirely. The suggested policies to de-dollarized Cambodia economic system are full

dollarization, currency board understanding, and go on Interim policy reform. However, the latest

seems most preferred.

The first pick of Cambodia is to travel frontward to full dollarization following the

precedential illustration in Latin American economic system particularly Panama. Adopting this policy,

Cambodia has a great save in dealing cost, is easy to incorporate itself in the regional and planetary

economic system by trade and capital flow and besides maintain high monetary value stableness. However, full

dollarization seems non the right pick for Cambodia. Since Kampuchean economic system does non

closely related to US and therefore it does non let Cambodia to maintain path with US economic system easy.

Furthermore, giving up riel currency implies scarifying more seigniorage benefit to US and has no

more ability to utilize ain pecuniary policy as the loaner of last resort of domestic commercial

bank. Furthermore, the authorities of Cambodia has n’t showed any committedness to turn to maintain

dollar as legal stamp. The Minister of Ministry of Economic and Finance, Mr. Keat Chhun at the

Establishing Kampuchean Economic Forum in 2006 said “ … However, it should be seen that the

Royal Government is now implementing de-dollarization. … Our economic system must be based on

national currency, which should be based on a basket of foreign currencies and consistent with

the integrating of our economic system into regional and universe economic system. ” It is non likely that Cambodia

take a contrary policy from its committedness.

Second policy is to make currency board understanding in Cambodia. A currency board is a

pecuniary authorization, unlike cardinal bank, issue domestic currency that is ever exchangeable to

foreign currency at a fixed exchange rate on the footing of 100 % . This means that if 1 $ = 4000 riel,

the currency board needs 10 $ modesty to publish 40000 riel. The currency board makes net income by

deriving involvement from its foreign modesty by the disbursal of cost in go arounding local currency. The advantage of CBA is the gaining of seigniorage benefit over the dollarization that makes state

loss in that. Although Currency board seems a good pick but it need excessively much attempt from

Cambodia and besides has side effects. There is an estimated that riel is 10 % of the currency of

circulation and the official modesty is ternary of this which is equal to 30 % . Therefore, it means that

Cambodia demand to treble the modesty to roll up all dollars in circulation. Therefore, currency board

may take to a aggregate authorities debt. Is at that place any other ways that Cambodia can acquire more

official modesty?

Finally, the last alternate for de-dollarization is to utilize interim policy. Interim policy is

to put objective of de-dollarization in longer term and speed up reform. In this attack, the

authorities of Cambodia should go forth the pecuniary system as they are on the one manus ; and

addition macroeconomic stableness which addition riel confident and demand every bit good as restore

riel-friendly environment on the other manus. First of all, National Bank of Cambodia plays an

of import function in this policy. NBC is the last resort of loan of commercial bank, so NBC provide

riel as a mean to refinance. Then Cambodia authorities should advance the usage of riel currency

as a mean of exchange with security and low cost. Last, the NBC can utilize Treasury measure to pull

the riel fiscal market by supplying higher involvement than dollars salvaging. Beside the function of the

bank, the revenue enhancement policy reform is besides taken into history. Demand of riel can be raised when there

is duty to pay all sort of revenue enhancement in riel. Therefore, when there is more revenue enhancement aggregation in riel implies

more demand in riel. Besides, the versions of bing establishment that allow ease the

dollarization is of import. For illustration, the lower limit pay jurisprudence in Cambodia is indentify is

dollar non riel and the most international organisation operated in Cambodia preferred to pay

wage in dollar merely while in other state the authorities required the international

organisation to pay 30 % -40 % in local currency. Furthermore, there are besides excess demands of riel

in microfinance that can non be fulfilled. it is estimated that microfinance industry demand Riel

120 billion in 2008, but the supply is non plenty. Therefore, it is of import to decide the

dollarization-friendly-condition above by take any position service for dollarization although

there is a certain part in dollar paying in pay and wage and increase supply of riel in

microfinance industry.

One can knock that Kampuchean authorities has done a batch in reform for macroeconomic

stableness but the consequence is still high dollarization in today economic system. Cambodia has

enjoyed high growing, mean two digit growing in last five twelvemonth, despite the distraction from the

planetary fiscal crisis in 2008, yet the there still the same dollarization. In add-on, to reconstruct

attract demand in riel as a secure and low dealing cost currency is non good because the

commercial bank has promote it by giving higher involvement rate than dollar sedimentation already. The

job is non concentrate on what have Kampuchean has done, alternatively it is of import to cognize what

else needed to accomplish long-run end of de-dollarization. Furthermore, bit by bit de-dollarization

procedure can ease the economic system adaptation. As consequence, when the Cambodia reach the macroeconomic

stableness the authorization can take advantage of strong fiscal system to increase confident in riel

and therefore to de-dollarized.

In decision, Dollarization in Cambodia is non the affair that easy to settle because

there a high nexus between citizen who prefer dollarization as the consequence of being non confident in

riel and weak fiscal establishment and a high loss in the authorities who is the coordinator

between those two. Among the suggested policy in de-dollarization which are full dollarization,

currency board understanding and interim policy, the last pick is likely the best option for

Cambodia because it respresent the appropriate capacity ot the provinces every bit good as allowed people to

addition confident and demand in riel considerable. However, the previouse attempt in this policy

is non plenty so Cambodia need a higher committedness and capacity in this policy. On the other

manus, domestic policy entirely may non enough to cover with the dollarization which is the consequence

from capital and trade integrating. Therefore, regional cooperation battling dollarization can

be the future pick for Cambodia.

MC4: Subregional Cooperation in Dedollarization.

Cambodia, Laos and Viet Nam have shared common characteristic as the freshly

outgrowth economic system. First, the three states or so called CLV states have transform

from cardinal planned economic system to free and unfastened market economic system during 1980s and 1990s.

Because of the experience of monetary value instability, delicate pecuniary and exchange rate policy and

the developing or non being of fiscal market make all states likewise tend to

use Dollar alongside the local currency despite the different degree of dollarization. Although

dollarization has contribute to monetary value exchange rate stableness, it is non the good pick for them in

longaˆ?term because the authorities has lost much seigniorage, benefit and besides the function of last

resort of loaner of cardinal bank. CLV has tried their ain method to deaˆ?dollarize to get by with

shortaˆ?coming jobs by their ain reform so as to derive currency confident and besides bettering

fiscal establishment. Those policies seem to necessitate much attempt and clip and CLV to accomplish

entirely, therefore there is besides another pick of subaˆ?regional cooperation among CLV states

such as exchange rate government and individual currency country.

For CLV cooperation in pecuniary and exchange rate policy to battle both

depolarisation and pecuniary system sustainability which includes monetary value stableness, fiscal

stableness and exchange rate stableness, CLV have to make cooperation environment as a

stipulation. First, they have to make a web of policy shapers, economic expert elites, functionaries,

and research worker from all degree of authorities and fiscal establishment to take close surveillance

on CLV economic public presentation and discourse the possibility of new policy. Furthermore, the

webs should do a regular meeting information exchange, look intoing advancement and besides

brand adviser the possible country in economic integrating in the part. Second, CLV

states should make strong connexion of capital market among them. There are two

possible options for this. The Viet Nam should let the Kampuchean and Laos company to

list it stock market or the CLV can make common bond market of CLV subaˆ?region. To develop

capital market in CLV states they besides need to do a joint ordinance and supervisory to

guarantee transparence to investors and they need to cut down foreign exchange limitation among

the three states to cut down exchange rate hazard among investor excessively.

After accomplishing the above stipulation in pecuniary and exchange cooperation above,

CLV have two picks which are exchange rate cooperation and pecuniary cooperation to

multilaterally combat dollarization.

First of all, see the possible of future exchange government in ASEAN+3 in the East Asiatic

economic community, the CLV exchange rate cooperation can be pilot undertaking of the bigger

image of cooperation. CLV states should see the joint nog of currency to Dollar or

currency basket of currency famously Dollar, Euro and hankering while the weight of currency

depends on the trilateral treatment. This common nog to Dollar is a good pick for CLV

states because of several grounds despite some troubles. First, the stable exchange rate to

Dollar has showed the strength of currency against outside fluctuation therefore gain credibleness of

currency. Second, CLV already adopt restricted fluctuation of currency against Dollar and those

chief trading spouse, China besides already peg to Dollar. By making this the three states will

hold less dealing cost in altering their currency to Dollar when they are making trade and at

the same clip their currency will acquire confident from people since it is stable with Dollar. On the

other manus, when CLV nog to the basket of currency including Dollar, Euro and Yen, the CLV

state can cut down hazard when there is currency shocked in US. Alternatively of rely entirely on

exchange rate stableness with Dollar, CLV cut down the hazard by depend on two more major

economic systems, Europe and Japan. There is no right proportion of the three currencies in the

currency basket, yet it depends on the economic relation of CLV to the Gaˆ?3 ( US, Europe and

Japan ) and besides their ain dialogue. Besides, CLV can travel farther to subaˆ?regional currency

board which ensures the stronger nog to foreign currency therefore they get more seigniorage

benefit. However, they need much more attempt to accomplish this. First, they have to make a

stronger cooperation in organizing currency policy. Second, they need more foreign modesty

to run currency board and it needs high legal indorsement to acquire people use local currency.

In add-on to cooperation in Exchange rate government, it is besides of import that CLV cooped

to make pecuniary government. The CLV common currency is a long term end they require many

attempt from CLV to better the credibleness among public of currency every bit good as effectual

establishment to manage the transitional alteration of currency and strong political will of CLV leaders.

Besides, the CLV currency country can be established merely after the Asiatic Currency Unit ( ACI ) aˆ?

which is similar to European Currency Unitaˆ? , has been created in ASEAN+3. When there is

common nog to ACI in ASEAN+3 economic system, the CLV will alter to nail down ACI and they can make

their ain subaˆ?regional common currency in lower degree to increase their voice in ASEAN

cooperation, in add-on to the benefit for Exchange rate government. However, some bookman

suggests this option is hard to accomplish at least in short and average term because there are

many political sensitive issue to get the better of, weak establishment, and flexibleness of people.

In drumhead, in order to collaborate with each other so as to deaˆ?dollarize their economic system

CLV states has to two picks of Exchange rate government and individual currency. Those policies

are merely accomplishable when CLV states have strong foundation of cooperation in critical are

such economic solace and information sharing, joint appraisal and so on. They can more

benefit from this cooperation instead than taking action separately nevertheless it is merely longaˆ?term

end for them. In chance there is still possibility to acquire out dollarization when CLV are

determined plenty in cooperation.

MC # 5: Dollarization and Implication of Financial Architecture Reform

Cambodia among CLV is entirely dollarized states in the universe which face the

jobs. Dollarization is the common job in developing states such as Latin America

besides. Thus the instance of dollarization in Cambodia can besides reflect the state of affairs of the alteration of

fiscal architecture that affect the fiscal and pecuniary system in the universe. Dollarization is

the symptom of weak ability of domestic fiscal construction, historical monetary value in stableness and

political jobs urges people to utilize foreign currency. While the authorities the seigniorage

benefit and function of last resort of loaner the people enjoy the stableness of money in sedimentation as

good as trade and investing. Rooted from the globalisation there are three chief arguments in

planetary fiscal system.

1. Does dollarization good for developing state?

2. Should say liberalize people pick in utilizing currency they like or impose people to

choose national decree money?

3. Should IMF play of import function in the universe exchange rate stableness?

1. Does dollarization good for developing state?

Dollarization can give monetary value and exchange rate stableness in low cost in most outgrowth

market economic system. Hanke recommend developing states to utilize dollarization in instance that the

provinces do non hold strong pecuniary and financial policy to fasten currency value in long term

should utilize dollarization as pecuniary establishment. The above thought is non raised by him entirely

some bookman besides propose pick of dollarization because of several grounds. First, sing

the fiscal and dept crisis during 1980s and 1990s in much portion of the universe and therefore leads to

addition of high rising prices, currency devaluation and mass capital escape by foreign investors.

When developing state dollarization they can stabilise the currency, exchange rate. When

those states use a high confident and good quality currency like dollar in economic system is no

possibility of a crisp depreciation, and sudden capital escapes because of investor unconfident

is besides omitted. Second, dollarization can extremely cut down dealing cost and integrate

developing economic system closer to US. Third, the stableness of dollar in the economic system as currency in

developing states will promote people to salvage more and foreigner to put more.

However, dollarization is dearly-won. Government of developing states need to scarify

seigniorage benefit in dollarized economic system and the Central bank losingss its function of loaner of last

resort to the commercial bank in instance there is liquidness jobs. Furthermore, the provinces will lose

its sovereignty in term of pecuniary policy and exchange rate policy. Therefore, it is a critical determination

to whether or non to dollarize in developing states because they have to compare the

benefit of dollarization the cost to bear it every bit good as equilibrating the internal hazard with external


2. Should say liberalize people pick in utilizing currency they like or impose people to

choose national decree money?

Harmonizing to Laurence H. Meyer, a member of the Board of Governors of the Federal

Reserve System when there is more planetary fiscal integrating the authorities should increase

function in market subject, ordinance and besides supervising in money and besides exchange discount.

The provinces should better the international capital criterion, market subject. The province has

monopolized the mandate on Money subject by introduces national currency to demo

the selfaˆ?help system in term of currency and besides additions seigniorage benefit. However, Randal

Krozner, an economic expert at the University of Chicago ‘s Graduate, rejects the function of authorities

in currency circulating. He claim that private ordinance found in private histrions such as glade

house, recognition evaluation bureau, bargainer, capitalist investor, and others has provided stableness and

invention because they work closely to fiscal and currency market. He advises that the

authorities should cut down the intercession in the fiscal and pecuniary system and allow the

dynamic private sector to modulate the system. In short, while some scholar support

authorities function in ordinance the currency market, some other cull it and advance the

private ordinance alternatively. It is a hard determinations of a province, nevertheless, to loss its sovereignty in

term of currency. Yet that does non intend the stableness in the market force by private sector is

non of import. Finally, the 2nd argument becomes a hard determination.

3. Should IMF play of import function in the universe exchange rate stableness?

The 3rd argument is about the function of IMF as the fiscal stabilizer. IMF is theoretically

really of import to stabilise the exchange between provinces. When the authorities is unable to

pay the debt or has big budget shortage the IMF will supply short clip fund to finance the debt

or budget shortage. The states that have short term balance of payment job will acquire

fiscal helper to assist them keep the stableness of exchange rate. For, illustration during

Asiatic fiscal crisis IMF provide fund to Thailand, Indonesia, Philippine to assist them come out

of the crisis. Nowadays, the fund is larger and term is longer. However, an Economist historiographer

signifier Rutger University, claimed that the because of its moral jeopardy job IMF should

cut down its current function. When the province economic systems are ever backed by aid IMF they may

cut down to attempt to beef up ain pecuniary and budget policy and they tend to borrow and

pass more because whenever they get job IMF will assist them. Furthermore, when borrow

are expected to acquire money pay the debt even when they can non pay the debt they will probably to

borrow more and make bold to bear more hazardous investing. For illustration, in 1990s there was a

widespread debt crisis in Latin America states receive much aid from IMF and after that

they still borrow much money for other states. Then, when they borrow excessively much they still

thought IMF will assist them once more. This, jobs create misgiving in local currency in those

state that make local people turned to dollar currency alternatively. Therefore, IMF can play an

of import function in fiscal crisis by supplying shortaˆ?term debt funding but it besides unfastened door to

crisis by making moral jeopardy.

Cambodia merely faces the job of two former arguments about the dollarization and function of authorities in currency pick. However, Cambodia have n’t see high debt crisis as Latin America although Cambodia used to have temporarily fund from IMF twice in 1994 and 1999 to make full the authorities budget shortage.