When Kampuchean people go to the supermarket, they will non surprise that all the merchandises are priced in US dollar and it is besides common that when they work for the private company, the wage they receive is besides accounted in US dollar. How about bank sedimentations? Of class, money sedimentation is besides largely in dollars. These patterns show clearly that Cambodia has been dollarized. Dollarization occurs when a state uses US Dollar 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 although the proportion of dollar circulation in the economic system is high. 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. Therefore, 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. There are many groundss that dollarization has been initiated throughout the universe every bit good as Cambodia. This paper will present the construct of dollarization in the universe and its deduction in Cambodia such as cost and benefit and so the solution will be suggested. Finally, the last portion will reflect the dollarization to the planetary administrations particularly the planetary fiscal architecture issues.
Dollarization Phenomenon in the universe and Cambodia
There are two chief facets of dollarization. Dollarization is the topic of non merely the economic sciences but besides political relations. 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. Alternatively of unstable local currency, in dollarization system, Peoples use money so that they can ease the international trade and exchange rate dealing every bit good as value storage. When US assistance for the Reconstruction of Western Europe and other during post-World War II period and after the abolition of Gold Standard in 1971, the US dollar became the chief currency in the universe. Because of daze of fiscal crisis, some states adopt US dollar to cut down the currency hazard and create stableness. For, those states following dollarization is merely another term for fixed exchange rate compared to US dollar without much attempt[ 2 ]. Comparing to developing state currency, it is more dependable, valuable and profitable in making trade, hive awaying value, and doing dealing. On the other manus, more than economic dimension, Dollarization is the symbol of the US power influence. Beside economic value, money contains buying power which is the bosom of politic. The power has distributed to the Godhead ( US ) , the money changer ( Trader ) , and particularly the accountant ( US and Dollarized provinces ) . Therefore, distribution of money does non merely make hierarchy of people but it besides creates hierarchy in the universe.[ 3 ]The policy of Federal Reserve can impact the pecuniary stableness in dollarized states and utilizing dollar besides contributes to political stableness. For case, utilizing US dollar in Latin America implies its dependance on US and besides shows its inferior and dependance to US. For some other states dollarization is the bosom of political involvement. 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.
Dollarization in Cambodia
Dollar was foremost introduced to Cambodia since 1950s until 1970s because of birth US-Cambodia diplomatic relation, but it did non hold much influence to Kampuchean Economy. However Dollarization in Cambodia is the consequence of both the altering history saying from 1970s and present politico-economic 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 1990s[ 4 ]. 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.[ 5 ]“ Dollarization was the effects of deficiency in Riel ( Kampuchean currency ) assurance which could 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 abolished riel currency every bit good as stopped the national bank operation and therefore hoped to make full the spread of the rich and the hapless. Kampuchean people lived in adversity without any free concern dealing, modern agencies of shop value or exchange beside swap money, or private ownerships. Fortunately, in 1979 the population was saved ; nevertheless, this state remained 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. Equally much as 1.7 US million dollars have been poured in Cambodia through UN peace maintaining authorization, the UNTAC[ 6 ]. This state of affairs paved the ways of Kampuchean economic system depend on the US dollar, stronger money, and Cambodia easy became the most extremely dollarized state in Asia, and one of the highest in the universe
Furthermore, harmonizing to IMF, even today Cambodia economic and politic stableness has been improved, the proportion of Dollar in Kampuchean economic circulation is 90 % which is apathetic for a decennary ago. Beside the past instability and jobs the current state of affairs in Cambodia besides contribute to the being of dollarization and it is besides expected to last. Nowadays Dollar still plays major function in concern dealing, and the major sedimentation in bank. The portion of dollars in currency Circulation is highest in Cambodia, estimated at about 90 per centum. 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. 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. At the same clip free trade and free flow investing besides contributed to dollar injection in Cambodia.
In short, as 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 it is possible for provinces to utilize 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.
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 urges the authorities to critically see whether to de-dollarize by comparing its cost and benefit.
The Recent Situation of Dollarization
The position of Cambodia dollarization today is non far different from the 1990s[ 7 ]. 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.
Cost and Benefit of Dollarization
Long before 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 Cambodia[ 8 ]. 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 addition salvaging when there is a better and more dependable currency, hence, people tend to salvage in dollar to increase their wealth and to lubricate the economic system. Second, dollarization besides prevents hot money traveling out Cambodia in a short clip after returning from investing because investors still lodge money in local bank and reassign to their fatherland or reinvest easy. 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.
On the other manus, those benefits are instead smaller 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. Using another province ‘s currency straight impact patriotism and provinces sovereignty in term of politico-economic stableness. Alternatively of acquire easy affected by local rising prices, the dollar holder get easy affect by dollar instability particularly in recent old ages. 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 clip.[ 9 ]Bing 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. ”[ 10 ]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. Therefore, it means that Cambodia is slightly dependance on the US federal pecuniary policy. 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. Dollarization represents the inability of authorities to supply trust, confident and dependability to ain people. Finally, dollarization makes 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. The bank besides lost the function as the loaner of last resort which is of import in economic exigency. When commercial bank face liquidness job because they can non go around the money in clip, the NBC can publish money in riel to impart them to decide the job. Without function of loaner of last resort for NBC means that it can non react to liquidity crisis and therefore may take to economic disabled.
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. Dollarization has imposed 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. The Cambodia authorities has to demo its committedness and strengthen capacity to combated dollarization either locally or regionally.
Policy Options for Addressing Dollarization in Cambodia
The authorities of Cambodia has realized that the current state of affairs of dollarization in Cambodia has higher cost than benefit. However, the Kampuchean authorities has 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 turn toing the dollarization jobs. The suggested policies to de-dollarized Cambodia economic system are full dollarization, currency board understanding, and continued interim policy reform. The order has been ranked from the least to the most favourable options.
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 Launching 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.
Currency Board Arrangement ( CBA )
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 40,000 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 need to treble the foreign 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? It the chief concern that has non been answered.
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 increase 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 ( NBC ) 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 salary 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 macro-economic stableness but dollarization is still high in 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. Yet, the job does non concentrate on what has Kampuchean 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 representd the appropriate capacity ot the provinces every bit good as allowed people to increase confident and demand in riel considerable. However, the old 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.
Subregional Cooperation in Dedollarization.
CLV ‘s Common Characteristic
Cambodia, Laos and Viet Nam have shared common characteristic as the freshly outgrowth economic system. First, the three states or so called CLV states transformed 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 utilize 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 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 ; hence, there is besides another pick of subaˆ?regional cooperation among One hundred fifty-five states such as exchange rate government and individual currency country.
Precondition for CLV to collaborate in Dollarization
For CLV cooperation in pecuniary and exchange rate policy to battle both dedolarization 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 workers 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 make 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 name 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 battle dollarization.
Exchange Rate Regime
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. Creating stable exchange rate can increase local currency confident. To stabilise the local currency, CLV states should see the joint nog of currency to Dollar or 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, particularly China which 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 states 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. CLV can take illustration when they use common currency under Gallic colonisation as benchmark in common currency system. 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 profit 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.
Dollarization and Implication of Financial Architecture Reform
Cambodia among CLV is non entirely dollarized states in the universe which face the jobs. Dollarization is the common job in developing states such as Latin America states besides. Therefore, the instance of dollarization in Cambodia reflects 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 lost the seigniorage benefit, function of last resort of loaner, sovereignty and policy power, the people enjoy the stableness of money in sedimentation every bit good as trade and investing. Rooted from the dollarization there are three chief arguments in planetary fiscal system.
Is dollarization good for developing state?
Should provinces liberalise people picks in utilizing currency they like or impose people to take national decree money?
Should IMF play of import function in the universe exchange rate stableness?
Does dollarization good for developing state?
In the instance in Cambodia, the Dollarization is claimed to hold more cost than benefit, but how about the other developing states? There is still a argument about which 1 is higher between the benefit and cost of dollarization to developing states. Dollarization can give monetary value and exchange rate stableness in low cost in most outgrowth market economic system. Some scholar 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. They besides propose pick of dollarization because of several past experience. First, sing the fiscal and dept crisis during 1980s and 1990s in much portion of the universe and therefore leads to increase 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 incorporate 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 and equilibrating the internal hazard with external hazard.
Should provinces liberalise people pick in utilizing currency they like or impose people to take 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 self-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.
Should IMF play of import function in the universe pecuniary and 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 historian signifier Rutger University, claimed that 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 daring 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 created distrust 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 short-run 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.
The universe pecuniary and exchange rate system alteration because of the spread of Dollar after World War II and abolition of Gold Standard originate the importance of dollar to the universe. Because of the past macroeconomic and politic instability, currency and exchange rate job, weak fiscal establishments make developing states choose to dollarize. In the instance of Cambodia dollarization is the symptom stemmed from misgiving in local currency since 1970s, and besides the currency deficiency of reform demands to beef up economic system acquiring out of dollarization. In Cambodia, the cost of dollarization is much more than the benefit so it urge Cambodia to concern the dollarization. The province can hold both local action and subregional action to turn to dollarization. Finally, from the experience of Cambodia, one can reflect the deduction of planetary fiscal architecture through dollarization phenomenon into three issues: importance of dollarization in developing states, challenge that function of province and person in currency system, and function of IMF in planetary pecuniary and exchange rate system. The three argument has non been resolve yet, so there should be much more survey refering those job to assist developing states get more sustainable pecuniary and exchange rate stableness.