A Study on Digital Currency in the Kingdom of Cambodia

Abstract

Cambodia introduced Bakong as the world’s first Central Bank Digital Currency (CBDC) in October 2020. Bakong is issued by the National Bank of Cambodia and supports both the Cambodian riel (KHR) and US dollar (USD). In this Least Developed Country (LDC), the USD has a much wider circulation than the KHR, but the presence of the local currency has been rising since the CBDC was released. Although Bakong is the first CBDC in the world, there has been little research on its current situation and the challenges it faces. This research first examines how Cambodia’s unique communication infrastructure contributed to the successful launch of Bakong. It then presents an overview of and the issues surrounding the digital currency. Bakong was adopted smoothly fueled by the high penetration rate of mobile phones in the country. Also, as an LDC, Cambodia benefitted from a “leapfrog phenomenon,” in which it could adopt new technologies without facing obstacles related to existing ones. Meanwhile, operating Bakong also has its challenges. In particular, the USD is generally used for settlements of international trade and acceptance of foreign direct investment (FDI). Unless the KHR gains global confidence and maintains a stable exchange rate, it will not be able to replace the USD in such transactions. Therefore, even if Bakong contributes to the wider use of the riel within Cambodia, the dollar will most likely prevail unless the domestic economy continues to grow rapidly.