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Currency Substitution and Financial Sector Developments in Cambodia

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Abstract

The tendency to substitute domestic for foreign currency (as a way of holding wealth and a means of transaction for goods and services) is common throughout the world, and particularly so in countries attempting to overcome thin financial institutions or errant monetary policy. This paper uses monthly data to analyze the phenomenon of currency substitution in Cambodia during the recent economic and financial reform process, 1993-2001. Results show that there is a significant long run relationship between the expected rate of depreciation in market exchange rates and holdings of US dollars. The implications of this result for macroeconomic policy and broader financial sector developments in Cambodia are also examined.

Suggested Citation

  • Kem Reat Viseth, 2001. "Currency Substitution and Financial Sector Developments in Cambodia," International and Development Economics Working Papers idec01-4, International and Development Economics.
    • Handle: RePEc:idc:wpaper:idec01-4
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    File URL: https://crawford.anu.edu.au/degrees/idec/working_papers/IDEC01-4.pdf
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    Cited by:

    1. Inthiphone Xaiyavong & Toshihisa Toyoda, 2016. "Currency Substitution in Laos," Asian Economic Journal, East Asian Economic Association, vol. 30(1), pages 67-89, March.
    2. Lula G. Mengesha & Mark J. Holmes, 2013. "Does Dollarization Alleviate Or Aggravate Exchange Rate Volatility?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 99-118, June.
    3. Sovannroeun Samreth, 2010. "Currency substitution and seigniorage-maximizing inflation: the case of Cambodia," Applied Economics, Taylor & Francis Journals, vol. 42(15), pages 1907-1916.
    4. Yinusa, Dauda Olalekan, 2008. "Between dollarization and exchange rate volatility: Nigeria's portfolio diversification option," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 811-826.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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