On May 28, Central Bank Governor Chea Serey revealed that the Central Bank Digital Currency (CBDC) Bakong could increase the adoption of Cambodia’s Riel currency by facilitating cross-border QR payments.
Digital Currency in Cambodia
In an exclusive interview at Nikkei’s Future of Asia conference in Tokyo, Chea Serey discussed the dynamics of Cambodia’s currency system and how it’s evolving. She revealed that over 80% of Cambodia’s economy still relies on the U.S. dollar as part of a dual-currency system. However, the government is trying to ensure citizens use the riel more for local transactions. Cambodia’s central bank governor said that while the U.S. dollar dominates physical transactions, the local currency (riel) is used more in digital transactions.
Source: Cryptonews
Since its launch in 2020, the Bakong CBDC has facilitated a total of $70 billion in digital payments as of 2023, a figure approximately double the country’s GDP. Domestic Bakong CBDC transactions can be conducted in both riel and dollars, but the riel accounted for $20 billion of last year’s total, more than twice the value from 2022.
Serey further reiterated that cross-border transactions play an essential role in promoting the use of the riel. Bakong’s functionality extends to QR code-based payments between Cambodia, Thailand, Laos, and Vietnam, as well as transactions involving China’s UnionPay. These cross-border payments exclusively use the riel, requiring Cambodian citizens to have a riel Bakong account to conduct transactions with neighboring countries. Similarly, Thai tourists can only make QR code transactions in Cambodia if the merchants accept riel.
Bakong is different from other CBDCs because it’s backed by both the Cambodian riel and the US dollar. The dual support provides stability and broad usability within Cambodia’s unique dual-currency system, facilitating smoother transactions and financial integration. Cambodia is not alone in exploring CBDC to strengthen its fiat currency. In March 2024, the Hong Kong central bank launched a wholesale CBDC to bolster tokenization and the financial strength of the city. Additionally, the South Korean central bank is speeding up its CBDC project to test the digital Korean won (KRW) by the last quarter of 2024. This will be to test the usability and deposit function of the digital currency.
Cross-Border Payments
Cambodia’s central bank governor revealed plans to launch cross-border payments using Bakong CBDC with India as early as June 2024 and is also exploring collaboration with Japan. Potential collaboration with technologically advanced countries like Japan could bring technical expertise and innovations that enhance Bakong’s functionality and appeal. The collaboration could improve the payment system’s efficiency, security, and user experience, making the riel more attractive to domestic and international users.
Impact on Market and Asset Prices
Market Implications
The announcement of Cambodia’s plans to initiate cross-border payments using Bakong CBDC with India and explore collaboration with Japan signifies a significant advancement in the country’s digital currency infrastructure. This move could attract attention from investors and stakeholders interested in Cambodia’s economic development and technological innovation, potentially boosting confidence in the country’s financial ecosystem.
Asset Price Implications
Positive market sentiment surrounding Cambodia’s adoption of Bakong CBDC for cross-border transactions may lead to increased demand for the Cambodian riel, potentially driving up its value against other currencies. Additionally, collaborations with technologically advanced countries like Japan could enhance the perceived value and utility of Bakong CBDC, contributing to a bullish trend in asset prices related to Cambodia’s digital currency initiatives.
Conclusion
Cambodia’s exploration of Bakong CBDC for cross-border payments signals a significant step forward in its digital currency landscape. The potential collaboration with Japan and the upcoming launch with India underscore a promising future for Riel’s adoption and the country’s financial system. With Bakong’s unique dual-currency backing and expanding cross-border functionality, Cambodia stands poised to strengthen its economic ties and increase confidence in its currency, potentially driving growth and stability in both local and international markets.
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