The dollarization happens when people of one state use foreign currency in their state officially or on the side as legal stamp to do all minutess. Actually, there are three chief sorts of dollarization that illustrated in many portion of the universe. Most underdeveloped states in our planetary have started to utilize dollar of the United States as their official dollarization. This would intend that the state use foreign currency lawfully in all minutess and there is no local currency in the state such as East Timor, Panama, and so on. With the states that use foreign currency or replace the domestic currency with foreign currency to utilize in private dealing which it is non legal stamp is known as unofficial dollarization. This sort of instance can happen in most of the former Soviet Union and most of Latin America that they use foreign currency in a manner which is non legal stamp. While some other states, they adopted the U.S dollar as their functionary semi-dollarization which means that the currency in the state is used as US dollar legal stamp and their domestic currency is still utilize in their state at the same clip. It is really true that there are three chief types of dollarization circulated in the part but in this context we focus chiefly about the dollarization in Cambodia. Cambodia is a state that reflects with the official semi-dollarization. Cambodia people use foreign currency which is the US dollar and the usage of Cambodia ‘s currency, riel, to carry on in every dealing. Obviously, the official semi-dollarization is really common and acceptable for Cambodia to carry on this sort of dollarization in state.

Every state has their ain instance in following the foreign currency to carry on all minutess in their states. The dollarization flowed into Cambodia in several different facets. Cambodia is considered as a state that experienced all sorts of war which include civil war, cold war, and proxy war. The economic and politic in Cambodia started to hold good image after the terminal of civil war and other international war for about two decennaries during 1980s and 1990s. In the twelvemonth 1991 to 1993, Cambodia was overseen by the United Nations Transitional Authority in Cambodia ( UNTAC ) to convey free and just election in order to set civilian authorities to power. At that clip about 1.7 billion US dollar was distributed in Cambodia. Since UNTAC spend such a immense sum of dollar in Cambodia, this dollarization seemed to happen its market more easy in Cambodia economic system.

The economic sciences in the state recover after the election and political issues in 1997. Then the election was formed once more in 1998. At that clip the alliance authorities started to concentrate on economic sciences and political reform. Since so Cambodia featured the dollarization surged which made determination shapers to vie to invent a best policy for economic growing. The cause of monolithic influxs of foreign currency, private transportations, and export net incomes are from the supply side. The demand side cause big influxs of dollars from foreign states and this lead to the deficiency of assurance in local currency. Plus, with the authorities accepted a broad exchange system and an unfastened economic system, the dollar of the United States became a de facto legal stamp along with the domestic currency.

Finally, it clearly shows that the three assorted types of dollarization which include the official dollarization, the official semi-dollarization, and the unofficial dollarization are issued in about states in the Earth. Among these types of dollarization, the official semi-dollarization is adopted into Cambodia in assortment ways. With the flow of dollarization in Cambodia, there are some factors to demo how it appeared in the state.

II. The Emergence of Dollarization in Cambodia Economy

During the last two decennaries, the most popular currency characteristic of the globalisation has been increased significantly in de facto dollarization____ the domestic usage of a foreign currency, US dollar, in most emerging market, passage economic systems and so on. The dollarization of the United Stated has been utilizing in every dealing in many states particularly in the underdeveloped universe. Every state has their ain instance in following the foreign currency to carry on dealing in their states. Cambodia is considered as one of the developing states that adopted the US dollarization to carry on in their mundane life every bit good as to go around that green back along with domestic currency. There are several possible grounds of the emerging of dollarization in Cambodia economic system that this lead Cambodia to be a dollarize state up until now.

The chief ground with the emerging of the dollarization in Cambodia economic system is begin from the post-pol pot government which the macroeconomic direction at that period as in the mid 1980s was weak and so promoted to the so called ‘hysteresis ‘ phenomenon___ from simple inactiveness to path dependance to stiff irreversibility or the fact that history affairs, as citation by Jayant Menon ( 2008 )[ 1 ]. Cambodia is a state that experienced many wars and struggles that reflect in the characteristic of internal and external struggle. For illustration, Kampuchean people could n’t happen her district as a peaceable state as there were still some struggles occurred after the Khmer Rouge was ended which this consequences in United Nations Transnational Authority in Cambodia ( UNTAC ) to come to Cambodia to watch over the state ‘s politic and economic direction in the early 1990. Because the presented of the UNTAC in Cambodia, there was a big influx of the dollarization of the United States began to go around in this state since that clip. Besides, there was a sign language of the Paris Peace Agreement which allowed the United Nations Transnational Authority in Cambodia to take over the state ‘s disposal for two more old ages ( 1991-1993 ) . With the extending of mission, the cost of the UNTAC intercession was estimated about 2 billon US dollars. It showed that the subsequent of the dollarization was really high.

Following with the cost of the UNTAC resulted in immense sum of dollars ; Cambodia became about wholly de facto dollarization during 1991-1995 which this status continued till today. Dollarization at that clip was neither sought nor encouraged by pecuniary governments but instead on ‘supplied side ‘ it resulted from the monolithic foreign currency influxs stemming from ample international aid, private transportations, so on and so forward. Such large sum of dollarization influx from abroad plus the deficiency of confident of local people in utilizing domestic currency and politic and economic uncertainnesss during 1990s doing the dollarization to derive its popularity more than the local currency, riel.

To sum up, the dollarization in Cambodia economic system occurred in assortments facets that the nucleus of this cause started from the historical background that showed in conflicted between foreigners every bit good as insiders, the UNTAC intercession, big influxs of dollarization of foreign aid, unstable political relations and economic sciences, and deficiency of confident in state currency. As Cambodia is a dollarize state that accept the flow of dollarization in the state, dollarization does supply some advantages to this state to keep its economic system every bit good.

III. The Advantages of Dollarization in Cambodia

In the last 10 old ages, Cambodia economic system has been improved really significantly. As we can see from the capital income per individual is quickly increasing even though it is lowed comparing with others states in Asia. In the twelvemonth 2000 to 2001, Cambodia GDP ( Growth Domestic Product ) has gone up from 5.0 % to 6.3 % . Besides, from 2004 to 2007 the growing of state economic system reached to about 10 % per twelvemonth[ 2 ]. Is it because of dollarization circulated in our state? The chief factors of GDP turning are driven mostly by an enlargement of the garment sector, building, agribusiness, and touristry. Obviously, the usage of dollarization in Cambodia has three advantages that will depict in the following paragraphs.

First and first, the general advantage of dollarization which is clearly seen is the figure of investors has become higher and higher in our state. The investors in this context refers to FDI ( Foreign Direct Investment ) who seek to put in the states that has less opportunity of put on the lining in exchange rate. This is a good chance for dollarizing state such as Cambodia that the FDI interested in investing. The U.S dollar is considered as one of the currencies that has low exchange rate hazard among other currencies. Because of the low hazard in exchange rate, many investors started to swear and hold more confident in puting their concern in Cambodia. As the figure of FDI maintain traveling upward, the figure of unemployment in Cambodia is cut downing. The opportunity of working for Kampuchean people is higher than there were a few investors in the state. Harmonizing to Cambodia economic statistic show “ the garment industry presently employs more than 320,000 people and contributes more than 85 per cent of Cambodia ‘s exports[ 3 ]. ” Furthermore, the state ‘s economy will increase every bit good. Garment Factories, for illustration, they produce million of merchandises to import to foreign states and supply a batch of occupations for Kampuchean people to hold a good life criterion. With the import of the garment mills, they earn many net incomes which one portion of their net incomes come to domestic authorities.

Second, the dollarization can besides set up as a steadfast footing for a fiscal sector. The term of dollarization means more than merely the acceptance of a foreign currency but besides means fiscal integrating with the United States, which this will coerce Cambodia fiscal establishments to better their efficiency and the quality of their goods and services. Furthermore, as the institutional alteration, it signals a lasting committedness to low rising prices, financial duty, and transparence. This would intend that Kampuchean people could bask a good and comfortable life status. Furthermore, the benefits of the state could acquire from the utilizing of dollarization is that there could be a decrease of involvement rates for person who borrow in the state. Dollarization creates a stable relationship with a currency whose repute is already good established and secure.

All in all, the advantages of dollarization in Cambodia lead the state to hold a greater figure of foreign direct investors that this cause to the addition in GDP every bit good as cut down the poorness in state, the improving of Cambodia fiscal establishments in footings of efficiency and quality, and the decrease of involvement rate for borrowers in the part. Along with the advantages of dollarization, the disadvantages that dollarization conveying to us besides see in several instances.

lV. The Disadvantages of Dollarization in Cambodia

Following from the advantages of dollarization in Cambodia, it helps to excite the economic system of this developing state significantly which this emphasizes that dollarization do supply some advantages to the state that issue dollarization. However, for every advantage there is a disadvantage. This context will name some disadvantages to demo the impact of dollarization on Cambodia economic system.

First and first, the acceptance of dollarization in Cambodia clearly show its impact on authorities which it loses the income of authorities where they get it from seigniorage. This term can depict as the beginning of income for the state along with what they get through revenue enhancement. Dollarization automatically conclude that income unless balance by some sort of in agreement expression for seigniorage-sharing with the U.S. In existent pattern, the loss of seigniorage will be smaller, the greater is the grade of anterior informal dollarization[ 4 ].

The 2nd disadvantage of this dollarizes state that gets from the U.S bill is lender of last resort, after the U.S dollarization was adopted it seems like the ability of cardinal bank of dismissing freely in times of fiscal crisis[ 5 ]. The possible liquidness hazards might be more exposed by domestic bank. Since an external portion the minutess that earlier required foreign exchange that now treated as the equivalent of domestic dealing the dollarization cut down the overall require for international militias.

Finally, the usage of dollarization circulated in Cambodia affect the symbolic of Cambodia.

The centralisation of state authorization help insofar as citizens all feel themselves bound together as a member of a individual societal unit where it come from all the portion of the similar political and traditional community and therefore portion the same individuality[ 6 ]. This individuality can be considered by all the touchable symbols such as flags, public architecture, anthems so on and so forward and among those symbols money besides represent as national individuality of one state like Cambodia currency, riel, because it is issued by the authorities or cardinal bank as good which this currency plays an of import function as a reminder to Kampuchean people of related to Cambodia.

In the nutshell, the usage of dollarization although we conduct it as unofficial dollarized, it show the disadvantages of this currency on Cambodia on assorted facets such as the loss of seigniorage, an effectual loaner of last resort for local bank, and the loss of symbolic of Cambodia currency. With these impacts, it seems that the expletive is so far overweight the approval. Cambodia authorities should make some actions to halt these impacts before it become worse.

V. The Decision

The dollarization in Cambodia as what we have mention before stated that the dollarization was use as de-facto dollarization which it was following into Cambodia after the stoping of the civil war every bit good as the coming of UNTAC that saw a immense figure of the U.S dollar circulated in Cambodia. To convey free and just election every bit good as to stabilise security and beef up the economic system for this underdeveloped state, UNTAC distributed such a large sum of dollar about 2billion on these issues. The flow of dollarization in Cambodia non merely because of the coming of UNTAC but besides because of some factors such as the circulating of dollarization by alien who came to Cambodia for their concern or for their visit, the utilizing of neighbour currency ( Vietnamese Dong and Thailand Bath ) which these besides lead to the unfavourable and deficiency of confident of Kampuchean people in making dealing through Kampuchean currency, riel, and as the state of affairs of the state at that clip was unstable in political and economic sectors besides allowed the dollarization flow into Cambodia easy.

With the flowing of dollarization, this dollarized state can derive some positive sights from this bill. From what it evidently showed, the figure of foreign direct investing came to put their money in Cambodia has increasing significantly as those foreign investors see that the opportunity of put on the lining in exchange rate is really low comparison with other state that use domestic currency to go around in their economic system. The approachs of investors help cut down the degree of unemployment to be shorter than before that this could excite the GDP of Cambodia to be more improve comparison with the yesteryear. However, there are some drawbacks with the utilizing of dollar in such a underdeveloped state. The authorities of the province will see the loss of income where those come from the seigniorage which means the income of revenue enhancement and besides the loaner of last resort which the ability of cardinal bank have cut down on discounting in clip of fiscal crisis. Plus, the adopting of dollarization as the unofficial dollarization in Cambodia besides makes Kampuchean pride to be low as it can stand for our nationality.

The dollarization in Cambodia benefits a batch from dollarization but at the same clip Cambodia cost a batch from dollarization which affected several advantages for the authorities. From this point of positions, it clearly showed that the disadvantage outweigh the advantage. As a consequence, the authorities should make some action to halt the spread of dollarization or cut down the grade of utilizing dollarization in this state but the inquiry besides come along with this thought which is “ can we truly ban the dollarization to flux in Cambodia if the people nowadays keeping dollar in their manus and every dealing are made in dollar ” . The reply to this is still loath to react with that inquiry. Cambodia authorities should deter the utilizing of dollarization and encourage and do trust for Kampuchean people to utilize domestic currency. In making so, the macroeconomic of Cambodia have to execute really good and it have to be stableness which related to fiscal market development and debut of local currency denominated instruments, which can still be appealing to local investors. In add-on, the local institutional of the cardinal bank every bit good as its pecuniary policy scheme should excite towards cut downing uncertainness about the value of the local currency. This evidently implies that monetary value stableness should be the cardinal bank ‘s chief aim and independency should be granted so as to ease the accomplishment of this aim.