Cambodia’s Angkor era may tell us something critical about the power of a monetary system.

At its height between the 9th and 15th centuries, Angkor Wat is thought to have been the world’s largest urban settlement, and an empire that covered much of the sub-continent. Surprisingly for such a large and sophisticated civilization, it was run entirely through trade and barter. The Angkorian Empire had no form of currency, even though we know from archeological finds, the empire was aware of coinage from other countries.

Over the years rival empires grew richer and more powerful, eventually over running what is now present-day Cambodia. We do not know for sure why the Angkorian Empire collapsed, but one theory is that its lack of currency gradually undermined its economy.

This lesson is not unique to Angkorian times. Throughout Cambodia’s history, the monetary system and political stability have been closely linked to one another.

One of the first Khmer riel banknotes from the 1956-1970 Cambodia Kingdom. Credit: National Bank of Cambodia

The new Khmer riel currency was first introduced in 1955 following independence. Growth was strong in this period, until regional and global instabilities shook its foundation. As instability took hold in the early 1970’s, the Government often printed money to finance budget deficits. A currency collapse first took place in 1974 as Cold War conflicts increasingly spread to Cambodia. Aid from the United States made up over 90% of the budget, with taxes accounting for a mere 2% of Government income (Sosoro Museum, 2020).  

In 1975 the Khmer Rouge took complete control of the country and the use of money was banned. In a vivid representation of the violent end of Cambodia’s monetary system, the National Bank of Cambodia building in Phnom Penh was blown up by the Khmer Rouge. After the overthrow of the Khmer Rouge, currency was re-introduced but the underlying poverty and continuing conflict contributed to monetary instability with bouts of high inflation.

Banknote from the 1979-1991 People’s Republic of Kampuchea, issued in 1980 after the Khmer Rouge. Credit: National Bank of Cambodia

The United Nations Transitional Authority in Cambodia (UNTAC), in place from 1992-1993, brought with it what has been called a “dollar tsunami”. It’s estimated the international community invested more than $3 billion during those few years and the helped bring about the US Dollar dominated monetary system we see today.

Today’s world presents its own challenges to Cambodia’s growth and its monetary system. The COVID-19 pandemic has rapidly slowed the global economy and the country is directly impacted by the slump in world trade. In 2020 alone, economic growth could contract to -4.1% as a result of the pandemic (UNDP, 2020).

Many governments across the world have taken advantage of historically low interest rates and rasied funds by issuing bonds to finance COVID-19 response and recovery plans. The Royal Government of Cambodia at present has no instruments for domestic or international borrowing from the capital market, and instead relies on concessional loan financing for financing new debt.

In this emerging landscape, finding additional resources is imperative, to support public sector development that enables Cambodia to reach higher levels of investment and inclusive growth. New channels of public borrowing by issuing bonds in local currency is one such opportunity.

Present day Khmer riel banknote issued in 2008. Credit: National Bank of Cambodia

The issuance of Khmer riel bonds would not only ease borrowing constraints faced by the government, but this would also facilitate development of Cambodia’s private sector capital market, by offering a debt instrument with a low-risk rate, creating a foundation for a long-term monetary policy.

This local currency bond would also underpin the government’s effort on de-dollarization and protect the economy against external shocks by reducing reliance on foreign currencies and other risks associated with currency exchange rate fluctuation. It would also empower the National Bank of Cambodia to take more control of monetary policy. This measure would allow for the expansion of new sources of public finance that could be used to achieve the Cambodian Sustainable Development Goals (CSDGs).

The global issues of today make the need for development financing increasingly evident. As Cambodia aims for graduation from Least Developed Country status by 2027, and achievement of Upper Middle-Income Country status by 2030, it needs to position itself with its monetary policy. The power of a strong financial framework with a solid monetary system to respond to global uncertainty remains as paramount as it was during Angkorian times.

The Integrated National Financing Framework (INFF) to Catalyze Blended Finance for Transformative CSDG Achievement programme is funded by the Joint SDG Fund through UNDP and UNCDF from 2020-2022. It sets an ambitious agenda to build a high quality, demand-driven financing framework for Cambodia, enabling the expansion of development resources in order to accelerate achievement of the CSDGs.

Written by:

Nick Beresford, UNDP Resident Representative in Cambodia

Dr. Ouch Chandarany, National Economist at UNDP Cambodia

Anika Funk, Communications Consultant at UNDP Cambodia

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