Dollar dip may have benefits (Updated)

Photo by: AFP
A Cambodian worker sews at a factory in Sihanouk province. Experts think the industry may benefit from a weakened dollar.

via CAAI

Sunday, 07 November 2010 19:36 Jeremy Mullins

Cambodia’s garment industry stands to benefit from the declining value of the United States dollar, according to Jayant Menon, principal economist at the Asian Development Bank’s Office of Regional Economic Integration.

The riel has strengthened against the dollar since an announcement last Wednesday that America’s Federal Reserve would buy up Treasury debt at a rate of around US$75 billion per month to the end of June, bolstering the struggling United States economy by $600 billion.

National Bank of Cambodia statistics show the riel strengthened in value by about two percent from Monday to Friday last week, trading at 4,134 riel against the greenback at the end of the working week.

Money changers near Phnom Penh’s Central Market on Sunday were buying one US dollar for 4,060 riel in some instances.

Jayant Menon said the Cambodian garment industry in particular could benefit from the strengthening riel.

“Since the US dollar is Cambodia’s de facto currency, this implies that for exports, both domestic costs and international receipts are determined in US dollars,” he said.

For the Kingdom’s competitors, many received payments in dollars, but paid all domestic costs in the local currencies – which would likely strengthen as the greenback lost value, he said.

“This effect could be particularly important for Cambodia’s clothing exports,” he said.

The declining value of the dollar against most currencies including the riel could also contribute to the “dedollarisation” of the Cambodian economy in the longer run, according to Menon, as “its [US dollar] status as a reliable store of value is likely to be eroded”.

However, he emphasised there were a number of other options besides the dollar for Cambodians to hold savings, such as baht, yuan or gold, and “that the real solution still lies with improving overall confidence of the riel”.

But Garment Manufacturers Association of Cambodia Secretary General Ken Loo said there would likely be little immediate impact from the latest United States stimulus package, as most competing nations were "selling [garments] in US dollars anyways".