PHNOM PENH: Southeast Asian countries that rely heavily on the dollar might be alarmed at its recent steep decline, but analysts warn against sudden moves to reduce their dependence on the greenback. In Cambodia, the dollar is far more prevalent than the riel, the local currency, while neighboring communist-run Laos sees shoppers paying for goods in kip, dollars or even Thai baht. In communist Vietnam, the local dong is popular enough, but dollars still account for 20 percent of all currency in circulation there. And in Myanmar (Burma) a volatile domestic currency has left locals distrustful of the kyat. “Not a single Burmese person I have ever met has savings in the local currency,” said Myanmar economics expert Sean Turnell from Australia's Macquarie University. Such heavy reliance on the greenback is known as “dollarization” and reflects “a general lack of confidence in the local currency”, said Jayant Menon, principal economist at the Asian Development Bank (ADB). The dollar has fallen sharply in recent weeks, but analysts say the US currency's woes are unlikely to immediately affect the use of domestic currencies much in these Asian nations. It might, however, influence the way people in these countries save or store wealth. “In Vietnam, it could result in a greater switch to gold. In Laos, a move to baht,” said Menon. “The long-term objective for these countries should be to de-dollarize,” said the economist, who has co-authored a new book about dollarization in Cambodia, Laos and Vietnam. But reducing reliance on the greenback can only work if governments address the underlying problems that caused the shift in the first place, he said, and for now the dollar is still “a safer bet”. Reliance on the dollar has benefits – it can bring stability to an otherwise volatile market and makes it more difficult for governments to simply print money to make up for budget shortfalls, according to experts. But it also limits the power of central banks to control the money supply or determine exchange rate policies. “Before the global financial crisis, a lot of these countries, especially Cambodia and Vietnam, had inflation building up and central banks couldn't do much in terms of mopping up the extra liquidity to try and keep inflation in check,” said Menon. “In a funny way, the global crisis was a bit of a blessing when it comes to controlling inflation because demand fell off sharply and these countries were then able to control inflation.” Another downside to dollarization is that these countries lose out on seigniorage – the revenue accrued when the cost of printing money is lower than the face value of that money. The ADB estimates that Cambodia, Laos and Vietnam miss out on $20 million to $90 million a year this way, with impoverished Cambodia being the biggest loser. – Agence France
