Introduction
The Cambodian Khmer riel has demonstrated notable stability in recent years, marked by a steady exchange rate and low inflation. Despite global economic turbulence, the riel’s value against the US dollar has fluctuated only minimally, instilling confidence among investors and the public . This report examines the factors behind the riel’s stability, including exchange rate behavior, inflation trends, dollarization, policy interventions by the National Bank of Cambodia (NBC), and the role of fiscal discipline and public confidence. It provides historical context and current data from credible sources such as the NBC, IMF, World Bank, and news outlets to offer a comprehensive analysis.
Historical Context
Cambodia’s modern currency history has been turbulent but ultimately set the stage for stability. The riel was reintroduced in 1980 after the Khmer Rouge period (during which money was abolished), and the 1980s and early 1990s saw episodes of hyperinflation. Inflation averaged over 50% annually in the early 1990s and peaked at well over 100% per year during that period, which eroded public confidence in the riel . In response, Cambodians increasingly turned to the US dollar as a stable store of value – a trend accelerated by large UN missions and aid in the early 1990s (which injected US currency) and by the riel’s volatility (inflation reportedly reached 177% in one year) .
By the mid-1990s, however, economic reforms and peace had dramatically stabilized the economy. Inflation was tamed from over 140% in 1990–1992 to single-digit rates by 1995–1997 . The riel’s exchange rate also stabilized. Since the late 1990s, the riel has effectively been kept at an unofficial peg of around 4,000–4,100 riel per US dollar . In other words, for roughly two decades the riel’s value against the dollar has remained in a tight range, which anchored price expectations and gradually restored a measure of trust in the currency. This period saw Cambodia emerge from conflict into a phase of high growth (6–7% GDP growth in the 1990s) and better macroeconomic management, providing a foundation for the riel’s stability .
Exchange Rate Behavior and Management
A cornerstone of Cambodia’s monetary policy is maintaining a stable exchange rate for the riel. The NBC effectively operates a managed exchange rate regime, targeting roughly KHR 4,000 per USD as the nominal anchor . In practice, the riel has been allowed to move within a very narrow band against the US dollar. For example, during 2023 the riel’s value fluctuated by less than 2% against the dollar . NBC Governor Chea Serey noted that Cambodia has been a “regional leader” in keeping its currency stable – in 2023 the riel depreciated only about 0.9% (average 4,071 KHR/USD, up slightly from 4,035) , even as other regional currencies saw much sharper losses (for instance, the Lao kip fell nearly 30% in value amid a strong US dollar) . By early 2025, pressures on the riel had even eased to the point of slight appreciation (trading around 4,030 KHR/USD) as Cambodia’s external accounts improved .
To achieve this stability, the NBC actively manages the foreign exchange market. The central bank intervenes by selling or buying US dollars as needed to prevent excessive volatility . Chea Serey has explained that stabilizing the riel’s value relies on “prudent monetary policy, effective riel circulation management and timely interventions to sell US dollars on the market” . These interventions are backed by Cambodia’s sizable international reserves. The NBC has accumulated over $20 billion in foreign reserves – equivalent to more than 7 months of import cover – which provides ample ammunition to support the riel . In fact, as of late 2023, Cambodia’s reserves had grown about 12% year-on-year, reflecting capital inflows and prudent reserve management . Such a war-chest allows the central bank to smoothly supply or absorb dollars and thus defend the riel’s peg during periods of pressure. The exchange rate policy is considered “essential” to NBC’s mandate because a stable riel serves as the anchor for overall price stability in Cambodia’s highly open, dollarized economy .
It’s worth noting that the riel’s stability is not a strict formal peg, but rather a stabilized arrangement. The rate of ~4,000 KHR/USD is widely recognized in the market and used for pricing (often prices are set in dollars and converted at the 4,000 riel rate for convenience) . The NBC’s steady management has kept the riel “broadly stable, hovering at around 4,100 per U.S. dollar” in recent years . This consistency in exchange rate behavior has minimized exchange-rate-induced shocks in the economy. It directly contributes to investor confidence, as businesses and foreign investors face little uncertainty about currency risk in Cambodia . A banking CEO in Phnom Penh observed that this stability “normalised the local macroeconomy” and boosted foreign investor confidence, creating a favorable environment for investment .
Inflation and Price Stability
Cambodia’s inflation has been low and stable, in large part due to the riel’s stability and sound macroeconomic policies. In 2022, global inflationary forces pushed Cambodian inflation up to around 5% (following global fuel and food price spikes), but this was temporary . By 2023, inflation had subsided to roughly 2.1% on average . In 2024, Cambodia saw inflation fall even further – NBC reports that inflation averaged just 0.8% in 2024, an exceptionally low rate . This dip was driven by declining fuel and food costs internationally, plus the stable riel which helped keep import prices in check . Chea Serey explicitly noted that maintaining the riel’s stability has “contributed to price stability in the market”, helping limit inflation on imported goods . Indeed, with the exchange rate roughly unchanged, Cambodians paying for imported commodities did not see the kind of currency-driven price surges experienced in countries where local currencies depreciated. The result was that even as the economy grew around 5–6% in 2024, consumer prices barely rose .
Over the longer term, Cambodia’s success in controlling inflation is striking when compared to the early 1990s. As noted, inflation exceeded 100% per year during 1990–93, but once the riel was stabilized, inflation was brought to single digits by the mid-90s . Since about 1995, Cambodia has generally maintained inflation in the low single digits (often in the 2–5% range annually), with only occasional spikes. The IMF observes that Cambodia has experienced “nearly three decades of low inflation” – a notable achievement for a developing economy . This stability in the general price level owes much to the exchange-rate-focused monetary policy. By using the exchange rate as a nominal anchor, NBC essentially imports the price stability of the United States (Cambodia’s economy effectively runs on a mix of riel and US dollars). As long as the riel moves closely with the USD, Cambodian inflation largely reflects US/global inflation trends rather than volatile currency swings. In recent IMF projections, Cambodian inflation is expected to remain contained – rising from an ultra-low ~0.5% in 2024 to a still-moderate ~2% in 2025, in line with global normalization . This outlook underscores how anchoring the riel has kept inflation expectations low. Low inflation, in turn, reinforces the currency’s stability by preserving purchasing power and public trust in the riel .
Dollarization and Its Role
A defining feature of Cambodia’s financial system is its extensive dollarization. The US dollar circulates widely in parallel with the riel. In fact, as much as 70–90% of transactions in Cambodia have long been conducted in USD, and the vast majority of bank deposits and loans are dollar-denominated . One IMF assessment from the late 1990s noted that commercial bank assets and liabilities were “almost exclusively in foreign currencies” . Today, estimates suggest over 80% of loans and deposits are in USD rather than riel . This heavy dollarization is a legacy of the 1980s–90s instability – people adopted the dollar for its reliability when the riel was weak. It also was fueled by the large influx of UN dollars in the early ’90s and ongoing use of dollars in urban and tourist transactions .
Dollarization has had a mixed impact on the riel’s stability:
- On one hand, dollarization has enhanced stability. With so many prices and contracts in USD, the economy is less exposed to exchange rate fluctuations in daily life. The NBC’s ability to maintain a quasi-peg is bolstered by the fact that many Cambodians simply use USD directly for larger transactions, meaning demand for USD is met in the marketplace without straining the riel’s value. During the 1997–1998 Asian Financial Crisis, for example, Cambodia’s high degree of dollarization helped “limit the exchange rate impact of the external shock and inflationary pressures,” whereas neighboring Laos (with its kip currency) saw a 70% devaluation . In short, dollarization shielded the riel from speculative attacks and regional contagion to a significant extent. Cambodians did not rush to convert riel to dollars en masse during that crisis, because many were already holding dollars – this reduced the risk of a currency collapse.
- On the other hand, dollarization constrains monetary policy and sovereignty. With the economy so heavily dollar-based, the NBC has limited control over the money supply and interest rates. Traditional tools like open-market operations in riel are less effective when foreign currency deposits dominate broad money (in August 2024, for instance, over 90% of the growth in broad money was due to increased foreign currency deposits) . The NBC cannot independently lower interest rates to stimulate growth easily, because domestic interest rates must remain aligned with the USD-based environment. Essentially, Cambodia “imports” U.S. monetary policy to a large degree . This loss of some monetary levers is a trade-off that comes with the stability benefits of dollarization.
Given these dynamics, Cambodia’s authorities have cautiously aimed to increase the use of riel over time (de-dollarization) without disrupting financial stability. NBC has introduced measures to promote riel usage, such as requiring banks to hold a minimum portion of their loan portfolio in riel (at least 10% of new loans) . This policy has nudged banks to solicit more riel deposits and offer more riel loans, slowly expanding the riel’s role. The growth of riel in circulation indicates progress: the amount of riel cash in circulation jumped from KHR 356 billion in 1998 to KHR 14.1 trillion by end-2022 – an average growth of 16.6% per year . This reflects both a growing economy and gradually rising confidence in the riel over two decades. Still, officials acknowledge Cambodia’s “dual currency system” is a special situation . Economists have pointed out that as long as the economy remains heavily dollarized, Cambodia’s monetary sovereignty is limited – now that macroeconomic conditions are more stable, some advocate that it is an opportune time to strengthen the riel’s role as the primary currency . In summary, dollarization has been both a stabilizer (providing confidence and a buffer against shocks) and a constraint (reducing policy flexibility). The riel’s current stability owes much to the former, while the long-term goal is to carefully unwind the dollar reliance without jeopardizing economic stability.
Monetary and Fiscal Policy Measures
Monetary Policy: With conventional monetary policy tools constrained by dollarization, the NBC has focused on its exchange rate policy and careful liquidity management to maintain stability. The central bank effectively uses the exchange rate target as an anchor for inflation expectations . By committing to a stable riel-dollar rate, the NBC signals to the market that it will not allow devaluation, discouraging speculative attacks and aligning price-setting behavior to a stable benchmark. To back up this commitment, the NBC keeps substantial foreign reserves and will intervene by selling USD (or buying riel) whenever the riel comes under pressure . This was evident during the global COVID-19 pandemic and subsequent recovery: the riel’s value barely budged even as other emerging-market currencies swung, because the NBC actively smoothed any volatility. Furthermore, the NBC practices prudent money supply growth – it does create riel liquidity to support the growing economy, but in a controlled manner. The riel monetary base has expanded alongside demand. As noted earlier, riel in circulation has grown significantly, but this has been in line with economic growth and rising demand for local currency, not excess printing. NBC Governor Serey highlighted that the rise in riel circulation is a response to greater usage, not uncontrolled policy – indicating monetary discipline . In late 2023, for example, the NBC even eased reserve requirements slightly to ensure adequate liquidity as credit slowed, one of the few levers it can use to fine-tune conditions . Overall, the central bank’s approach is cautious: prioritize a stable currency and low inflation over other goals. The success is evident in the inflation outcome and the trust that the exchange rate will remain around its target. International observers (like the IMF) have encouraged NBC to continue modernizing its toolkit – for instance, developing a better interest-rate based framework – to improve policy effectiveness and eventually support de-dollarization . But until the financial system deepens in riel terms, the NBC’s measured, stability-first strategy will likely continue.
Fiscal Policy: Fiscal discipline in Cambodia has been an important complement to monetary stability. With limited monetary tools, avoiding fiscal excess is critical to prevent inflation or balance of payments crises. The Cambodian government has generally maintained moderate budget deficits and low public debt in recent years. In the late 1990s, after the Asian crisis, the government pursued strict fiscal restraint – refraining from central bank financing of the deficit – which helped “keep inflationary pressures in check” . This approach has largely continued. As of 2024, public debt is only about 27% of GDP, which is low by international standards . Government deposits (fiscal reserves) have been relatively healthy as well (on the order of 10% of GDP), providing a buffer . The fiscal deficit was around 3% of GDP in 2024 and is projected to narrow to roughly 2.4% in 2025 , indicating that the government is not overspending beyond its means. By avoiding excessive debt or money-printing to finance spending, Cambodia has averted one of the common causes of currency instability in emerging economies. Even during economic stress, such as the pandemic, the government leaned on concessional external borrowing and grants rather than the central bank, thus preserving monetary stability. The commitment to fiscal prudence gives credibility to the riel – both citizens and foreign investors see that Cambodia is unlikely to resort to inflationary financing, which helps maintain confidence in the currency’s future value. Going forward, continued efforts to broaden the tax base and strengthen fiscal management (as recommended by the IMF ) will further solidify this pillar of stability. In essence, sound fiscal policy has reduced pressures on the riel and allowed the NBC to focus on stabilizing the exchange rate without conflict from fiscal dominance.
Investor and Public Confidence
Investor Confidence: The stable Khmer riel has become a cornerstone of investor confidence in Cambodia. A predictable currency reduces one major risk for investors – exchange rate risk. Over the past several years, the NBC’s success in limiting exchange rate fluctuations to under 2% has not gone unnoticed . The central bank proudly notes that Cambodia’s exchange rate stability stands out even regionally, especially during times (like 2022–2023) when many developing-country currencies were depreciating significantly . This stability has bolstered the confidence of foreign investors and trading partners, as it signals prudent economic management . When investors trust that the currency will hold its value, they are more likely to invest in long-term projects in the country (factories, real estate, etc.) and are less worried about sudden capital losses from currency moves. This confidence can create a virtuous cycle: stable currency -> more investment inflows -> stronger foreign reserves and economic base -> further currency stability. The NBC explicitly links exchange rate stability to maintaining macroeconomic stability and investor trust . In concrete terms, Cambodia has indeed attracted robust foreign direct investment (FDI) in the past decade, much of it from within Asia, which has helped finance current account deficits without straining the currency. Even during global shocks, investors have not panicked about the riel, thanks to its record of stability.
Public Confidence: Public sentiment toward the riel has also improved alongside its stable track record. In the early 1990s, confidence in the riel was extremely low – the populace preferred gold or dollars as a store of value due to the memory of hyperinflation and currency collapse during the Khmer Rouge era (when the currency was literally abolished). However, after nearly 30 years of relatively stable prices and exchange rates, more Cambodians are willing to hold and use riel for everyday transactions and savings. The steady increase in riel circulation (now into the trillions of riel as noted earlier) is one indicator of this rising trust . The government and NBC have also taken measures to encourage pride and trust in the national currency – for example, paying civil servant salaries in riel, requiring all price quotations to include riel, and running public awareness campaigns. Such moves, combined with the riel’s actual performance, slowly change the mindset that dollars are inherently more stable.
That said, public confidence is a gradual build; many Cambodians still instinctively prefer dollars for large transactions or savings. This is understandable given that dollarization has been entrenched for decades. But crucially, there is no sense of panic or distrust about the riel today – it is viewed as stable, even if not as convenient as the dollar in some cases. The NBC’s credibility plays a big role here. By consistently defending the riel’s value, the NBC has signaled to the public that their riel holdings will not suddenly lose significant value. Indeed, during recent global inflation surges (2021–2022), the riel held value and domestic inflation remained lower than in many countries, reinforcing public perceptions that the riel is reliable. A lecturer at the Royal University of Law and Economics in Phnom Penh recently described the environment as possibly “ready for the national currency to establish itself as the primary means of payment” – suggesting that macroeconomic stability has laid the groundwork for greater public embrace of the riel . In summary, confidence – both investor and public – is at the heart of why the riel is stable: confidence stems from stability and, reciprocally, helps sustain that stability by reducing the likelihood of destabilizing currency runs or speculative attacks.
Current Trends and Outlook
As of mid-2025, the Khmer riel remains steadfastly stable and the economic outlook is broadly positive. The exchange rate is hovering around 4050 riel per US$ and continues to be managed within a tight band . Both the IMF and NBC project that inflation will stay moderate in the near term – on the order of 2% in 2025, which is in line with global price stability . This suggests that Cambodia will maintain its price stability even as it gradually accelerates growth post-pandemic. Real GDP growth, which slowed during 2020–2021, recovered to about 5.2% in 2023 and an estimated 6% in 2024, and is forecast around 5.5–6.2% in 2025 . Strong exports (especially garments and travel goods) and a rebound in tourism have contributed to this growth, bringing in foreign exchange that supports the riel . Meanwhile, the construction and real estate sectors – previously hot – have cooled, but this has also helped ease import demand and take pressure off the current account. Cambodia’s external position is reasonably solid: after a pandemic-era deficit, the current account gap has been financed by FDI and is manageable, and as noted, international reserves are high .
The policy stance in 2025 continues to prioritize stability. The NBC has signaled it will remain vigilant against exchange rate volatility and stands ready to intervene if needed. It is also working on modernizing its monetary framework (e.g. developing the interbank market and instruments in riel) to improve policy effectiveness over time . There is a clear recognition that as Cambodia develops, a more flexible monetary regime may eventually be desirable – but only once the fundamentals (like public confidence and financial infrastructure in riel) are strong enough. For now, maintaining the status quo of a stable riel is seen as the prudent path. The government likewise is expected to maintain fiscal prudence, as evidenced by budget plans showing moderate deficits and a focus on increasing revenue collection to fund development without jeopardizing stability .
In terms of risks, Cambodia is not without challenges. The high credit growth of the past decade has led to elevated private debt and some fragility in the real estate sector, which the NBC and government are monitoring closely . A sudden shock in that sector could test banks and, by extension, confidence (though banks mostly lend in USD, which mitigates direct currency impact). Externally, Cambodia is somewhat vulnerable to global economic swings – a slowdown in major trading partners (U.S., EU, China) or adverse shifts in U.S. interest rates could affect exports, FDI, and the flow of dollars into the country. However, with its accumulated buffers (reserves, low debt) and experience managing stability, Cambodia is relatively well-positioned to weather moderate shocks. The fact that the riel stayed stable through the COVID-19 shock and the global inflation spike of 2022 speaks to a resilient framework.
Overall, the Khmer riel’s stability is the product of prudent and coordinated efforts: a consistent exchange rate policy, low inflation achieved through discipline, the stabilizing presence of the US dollar in the economy, and supportive fiscal and structural policies. These have created a feedback loop of stability and confidence. Looking ahead, as Cambodia continues to grow and possibly aims to gradually de-dollarize, maintaining public and investor trust will be crucial. The current trends suggest that confidence in the riel is slowly expanding, and with continued sound economic management, the riel is likely to remain one of the more stable currencies in the region. The National Bank of Cambodia’s challenge will be to uphold this stability while gradually building the groundwork for a more autonomous monetary policy in the future. For now, the riel stands as a symbol of Cambodia’s economic stability, backed by careful stewardship and the lessons learned from its tumultuous history.
Sources: National Bank of Cambodia reports and statements; IMF Article IV Consultation 2024 Press Release; World Bank Cambodia Economic Update (Dec 2024); Phnom Penh Post and Khmer Times reports on NBC announcements; Fresh News Asia (NBC Annual Conference, Feb 2025). Citations have been provided throughout the text for specific data and quotations.