Cambodia’s Dual Currency System: A Monetary Transition in Progress
Cambodia operates one of Asia’s most distinctive financial systems: an unofficial but deeply entrenched dual-currency economy where the Cambodian Riel (KHR) and US Dollar (USD) coexist as complementary mediums of exchange. Unlike neighboring Thailand and Vietnam, which maintain strict reliance on their national currencies, Cambodia has developed a pragmatic two-tiered monetary structure over three decades. However, recent government initiatives to phase out small-denomination US banknotes and restrict ATM withdrawals to $100 bills are fundamentally reshaping how this system functions, creating practical challenges that are accelerating the gradual de-dollarization of everyday transactions.
The Cambodian Riel, the country’s official currency, trades at an informal but remarkably stable exchange rate of approximately 4,000 to 4,100 riel per US dollar. Historically, the US Dollar has dominated in urban areas, tourist destinations, and for major transactions. This dual-currency arrangement emerged from historical necessity rather than planned policy, rooted in Cambodia’s recovery from the Khmer Rouge regime and reinforced by external circumstances during the country’s transition to democracy. Today, however, structural changes to the monetary system are forcing a fundamental rebalancing of currency roles that affects how ordinary Cambodians and visitors conduct daily commerce.
Historical Origins of Dollarization
The foundation for Cambodia’s dollarization was laid in the 1980s but accelerated dramatically during the United Nations Transitional Authority in Cambodia (UNTAC) period from 1991 to 1993. During this critical transition, approximately 22,000 UN personnel stationed throughout Cambodia injected substantial US dollar spending into an economy that had no stable monetary system. Simultaneously, Cambodian refugees began sending remittances in US dollars, further strengthening the foreign currency’s presence. Most critically, the riel suffered from devastating hyperinflation reaching 177 percent annually, eroding public confidence in the domestic currency almost entirely.
Although the Riel was formally reintroduced in 1980 by the Vietnamese-backed government, it could not overcome the psychological and economic advantages of the dollar. Cambodian citizens and businesses increasingly viewed the US Dollar as a safe, reliable store of value in an uncertain political and economic environment. This perception proved more powerful than official monetary policy, and the dollar’s position became self-reinforcing through network effects—businesses quoted prices in dollars because customers expected to pay in dollars, and customers sought dollars because they were universally accepted. For three decades, this dynamic created a stable but highly dollarized economy that constrained monetary policy options.
The Historical Dual-Currency Model (Before 2020)
Prior to 2020, Cambodia’s economy operated under a well-established dual-currency framework with a clear functional division. The Cambodian Riel remained the official currency, but the US Dollar dominated in urban centers like Phnom Penh and Siem Reap, in tourist areas, and for significant financial transactions. Hotel rooms, airline tickets, tours to Angkor Wat, real estate transactions, and approximately 90 percent of commercial bank loans were priced and conducted exclusively in USD. International businesses, government agencies, and financial institutions operated primarily in dollars. When visitors arrived at Phnom Penh International Airport, they paid visa fees in US dollars, and ATMs dispensed a range of both dollar and riel denominations.
The riel remained essential for local commerce, particularly in rural provinces, markets, and small-scale transactions. Street vendors, small restaurants, and rural merchants conducted most business in riel. In urban areas, both currencies circulated, with dollars used for larger transactions and riel for smaller ones. ATMs throughout the country could dispense $1, $5, $10, $20, and $100 USD notes, along with various riel denominations, giving customers considerable flexibility in their currency holdings.
The Structural Shift: Removing Small Dollar Notes and Restricting ATM Withdrawals
Beginning in 2020 and accelerating through 2024, Cambodia’s government and the National Bank implemented an increasingly aggressive de-dollarization campaign that fundamentally altered the practical mechanics of the dual-currency system. The transformation occurred through two coordinated policy changes with profound practical consequences.
First, the government systematically phased out small US denomination notes. Banknotes of $1, $2, and $5 are no longer issued by banks and are sometimes rejected by merchants in cities and towns throughout the country. This elimination of small-denomination dollars was deliberate and strategic: it removed the convenience that had sustained dollar usage for everyday transactions while preserving the dollar’s utility for larger commercial activities.
Simultaneously, the National Bank restricted ATM technology across Cambodia. Most ATMs now offer only two practical options: withdraw $100 USD banknotes or withdraw Cambodian Riel in standard denominations (10,000, 20,000, or 50,000 riel notes). A customer seeking cash no longer has the option to withdraw $5, $10, or $20 bills. This technical constraint, combined with the elimination of small-denomination notes from circulation, creates a transformative practical problem for dollar transactions in the $1 to $50 range.
The Change-Making Problem: A Hidden De-dollarization Tool
The practical challenge of making change for $100 USD banknotes at small retail outlets has emerged as an unexpectedly powerful mechanism driving de-dollarization. This problem was not accidental—it represents the logical and intended consequence of the structural policy changes.
When a customer at a small market stall, street-food vendor, or neighborhood shop attempts to pay for a meal costing 8,000 riel (approximately $2) with a $100 bill, the merchant faces an immediate and often insurmountable problem: they must somehow produce $98 in change. For a small retail outlet operating with limited cash reserves and minimal access to banking services, this is practically impossible.
A market vendor or street-food seller typically operates with a daily cash float of perhaps $200 to $500, carefully managed to cover their operating costs and provide change for customers. Breaking a $100 note would immediately deplete half or more of their working capital, leaving them unable to conduct business or make change for subsequent customers throughout the day. Moreover, small outlets have no practical mechanism to convert excess dollars back into riel or to obtain smaller denominations—they lack business bank accounts, cannot visit banks during their operating hours, and informal money changers charge substantial fees (often 1-3%) for converting dollars to riel, which renders the transaction economically pointless for small amounts.
This structural constraint means that merchants actively discourage or refuse payment in $100 bills for small purchases. A customer who pays with a $100 note for a $3 purchase creates a problem that the merchant must solve through alternative means: requesting the customer use riel instead, refusing the transaction, or accepting the loss implied in the low exchange rate that informal money changers offer. In practice, most merchants simply request that customers use riel.
From a monetary policy perspective, this outcome is entirely intentional. By making large-denomination dollars impractical for small transactions, the National Bank and government effectively coerce both merchants and consumers toward riel usage without implementing an outright ban on dollar transactions. A customer who withdraws $100 from an ATM cannot feasibly spend it on purchases under $20 without creating change-making problems at every transaction. This structural constraint nudges consumers and merchants toward riel for the majority of daily commerce.
The Transformed Currency Usage Model
As a direct result of these structural changes, Cambodia’s dual-currency system has fundamentally transformed over the past three to four years. Transactions under $10 to $20 are now conducted almost exclusively in Cambodian Riel, driven by practical merchant constraints rather than cultural preference or government prohibition. Street vendors, market stalls, small restaurants, and neighborhood shops quote prices in riel and strongly prefer riel payment to avoid the change-making problem created by $100-only dollar availability.
When customers do attempt to pay with dollars—necessarily $100 bills—merchants typically refuse the transaction for small purchases or insist on payment in riel. When dollars are accepted for medium-value transactions ($20-$100 range), merchants automatically provide change in riel rather than dollars, a practice that has become so normalized that customers now expect and anticipate riel change.
This shift has created a clear bifurcation in Cambodia’s retail landscape based on merchant type and transaction size. Large businesses—supermarkets, shopping malls, hotel chains, restaurants in tourist areas, and airline ticket offices—still operate comfortably in dollars and maintain sufficient cash reserves to accept $100 bills for transactions of any size, including large ones. These establishments have access to bank services, maintain business accounts, can process currency exchanges at favorable rates through their banks, and process transactions at scale sufficient to justify holding large dollar cash reserves. They possess the capital and operational structure to manage large-denomination currency.
By contrast, small outlets—neighborhood markets, street-food vendors, independent repair shops, local transportation services, and family-owned businesses—have largely abandoned dollar transactions for small-value items and operate predominantly in riel for their customer-facing commerce. These merchants lack the capital base to absorb $100 bills, cannot make change easily, and instead direct customers toward riel transactions. This creates a de facto segmentation of the dual-currency system by merchant type and transaction size, rather than by geographic location as existed previously.
Economic and Policy Implications
Economists and the National Bank of Cambodia identify significant benefits arising from this forced rebalancing of the dual-currency system. The US Dollar’s historical dominance had severely constrained Cambodia’s monetary policy authority. Traditional central banking tools—adjusting the money supply, controlling inflation through domestic interest rates, and managing currency depreciation to support exports—become ineffective when a foreign currency dominates the economy. The National Bank maintained only indirect control over monetary conditions and focused on managing the riel supply and exchange rate within narrow parameters.
By increasing riel circulation through practical mechanisms rather than policy mandates, the National Bank has incrementally restored its ability to influence monetary conditions. When consumers and merchants use riel for the majority of daily small transactions, the riel money supply becomes more significant relative to dollar holdings, allowing interest rates and monetary aggregates to respond to central bank actions with greater sensitivity. Moreover, the gradual riel rebalancing has occurred without the economic disruption that would accompany an abrupt de-dollarization policy—businesses and consumers have adapted pragmatically to the constraints created by the ATM and banknote policies.
Interest rate spreads between riel and foreign currency deposits have begun to narrow slightly as riel deposits become more proportionally significant in the overall financial system. This represents a subtle but meaningful shift in how Cambodian financial markets price currency risk and reflects the growing relative importance of riel in daily economic activity.
The stability and predictability that characterized Cambodia’s dollarized economy—with inflation averaging around 4.5 percent annually—has been maintained through this transition, demonstrating that de-dollarization through practical constraint can occur without triggering the inflation or currency instability that economists sometimes fear.
The Challenge for Informal Economy Participants
However, the shift to $100-only ATM withdrawals and the removal of small-denomination notes has created significant practical challenges for certain participants in Cambodia’s informal economy. Migrant workers, domestic workers, agricultural laborers, and others in informal employment often receive remittances or wages in cash. When those funds consist only of $100 bills from ATMs, they cannot easily transact with small vendors, requiring them to withdraw riel instead.
Elderly Cambodians who accumulated dollar savings over decades before the policy change find themselves holding currency that merchants increasingly refuse or discount heavily. A retiree with a collection of small-denomination dollar bills saved from previous years will find these notes are no longer accepted anywhere in the country. This represents a subtle but real redistribution of value and convenience away from the elderly and toward younger, more adaptable participants in the economy.
For tourists and short-term visitors, the practical challenge has intensified significantly. Travelers arriving with cash that does not include $100 bills will find they have limited options for spending dollars and will need to exchange their currency for riel upon arrival. This has shifted travel advisors’ recommendations: guides now universally recommend that visitors exchange all but a few $100 bills for riel immediately upon arrival, or withdraw riel directly from ATMs, reversing the previous guidance that emphasized keeping flexibility with multiple dollar denominations.
The Government’s Broader De-dollarization Campaign
The banknote elimination and ATM policy changes represent only the most visible component of Cambodia’s broader de-dollarization strategy. Additional measures implemented since 2020 include mandating that government employees receive salaries primarily in riel, requiring tax and utility payments exclusively in Cambodian currency, and compelling major supermarkets and retail stores to quote prices in riel alongside dollars. The government has also promoted the Bakong, a blockchain-based digital currency system designed to streamline payments and encourage riel usage for electronic transactions.
These complementary policies create a multi-layered approach to de-dollarization that operates simultaneously through supply-side constraints (restricting dollar note availability to $100-only), demand-side incentives (requiring riel for government transactions), and technological promotion (encouraging digital riel payments). Together, they constitute a more sophisticated and effective de-dollarization strategy than previous government efforts, which typically relied on exhortation and prohibition rather than practical constraints and incentives that naturally nudge behavior.
Structural Challenges and Long-Term Prospects
Despite these advances, the structural entrenchment of dollarization in large-value transactions and business finance makes complete de-dollarization unrealistic in the near term. Business confidence in the riel remains fragile for major transactions, and any perceived threat to the stability of the government or banking system would likely trigger a rush back to US dollars among businesses and wealthier individuals. The current pace of de-dollarization is deliberately gradual—measured in years rather than months—reflecting the reality that shifting economic patterns in large-value transactions and business confidence is fundamentally a problem of long-term institutional change.
Large-value real estate purchases, significant loans, and business-to-business commerce continue to operate in US dollars, and this pattern shows no realistic signs of reversing in the foreseeable future. The dollar’s role as a store of value for major economic decisions remains deeply embedded in business practice and institutional structures. What has fundamentally shifted is the role of the dollar in day-to-day, small-value commerce—precisely the transactions that most ordinary Cambodians conduct most frequently. This distinction is economically significant because it means monetary policy now influences the majority of consumer transactions, even if it cannot yet influence large business transactions.
Regional and International Context
Cambodia’s dual-currency system, and its current transformation, remains unique within Southeast Asia. Neighboring Thailand and Vietnam enforce strict controls over foreign currency usage and maintain dominant positions for the Thai baht and Vietnamese dong respectively. The Thai baht is accepted only in border areas of Cambodia; the dong even less so. This regional anomaly reflects Cambodia’s particular political and economic history—the legacy of the Khmer Rouge, the scale of UN intervention during the transition period, and Cambodia’s delayed integration into regional financial systems created conditions that allowed dollarization to take root and persist in ways that would not have occurred elsewhere.
The current transformation of Cambodia’s dual-currency system through practical constraint rather than prohibition represents a novel approach to de-dollarization that international observers and economists increasingly study. Rather than attempting to force a shift through policy decree—an approach that has failed repeatedly in dollarized economies worldwide—Cambodia’s government has designed policies that make the foreign currency impractical for small transactions while preserving its utility for large transactions. This pragmatic approach respects market realities and incentive structures while gradually shifting how economic activity is denominated.
Practical Implications for Daily Life in 2024-2025
For the average Cambodian and visitor, the dual-currency system now functions in a substantially different way than it did a decade ago. Transactions under $10-20 are conducted almost exclusively in riel, driven by practical merchant constraints and ATM limitations rather than by cultural preference. Attempting to pay for a small item or meal with a $100 bill will result in merchant refusal or a request to use riel instead. Medium-range transactions ($20-$50) increasingly occur in riel for practical reasons, though dollars are still accepted at larger merchants. Transactions above $50-100 routinely use dollars, though riel payment is also accepted.
Most ATMs dispense either $100 USD banknotes or riel denominations in 10,000, 20,000, and 50,000 riel notes. The option to withdraw smaller dollar denominations no longer exists. For visitors and residents accustomed to the previous system, this represents a significant adjustment in daily money management.
Practical guidance for travelers and newcomers has evolved significantly. Current best practices include: obtain at least one or two $100 bills before arrival for transactions at major establishments, then exchange any remaining dollars for riel immediately at the airport or withdraw riel directly from ATMs. Attempting to conduct business with any denomination other than $100 will be impractical. If you are visiting Cambodia, plan your dollar withdrawals strategically and expect to conduct the vast majority of your transactions in riel.
Banknote Condition Standards: A Practical Barrier to Dollar Usage
US dollar bills must remain in pristine condition to be accepted in Cambodia, a requirement that has significantly strengthened as the pool of circulating dollars has contracted and merchants become far more selective about which notes they accept. The standard has become so strict that even minor damage disqualifies a banknote from acceptance. A $100 bill with a small tear, a light crease, slight fading, or even a small stain will be refused by merchants without exception. A bill with a corner slightly folded, a small ink mark, or minimal wear from normal handling will be rejected or accepted only at a significant discount. This extraordinarily strict standard reflects both the dramatically reduced circulation of dollars in Cambodia and the merchant perception that any damaged bill might be counterfeit or might be rejected downstream by other merchants. For practical purposes, any USD banknote showing visible signs of use or wear beyond the most minimal handling will prove difficult to spend in Cambodia.
The contrast with riel could not be starker. Cambodian riel notes are accepted in absolutely any condition without question or hesitation. A riel note that is torn, heavily creased, faded, stained, or visibly worn will be accepted at full face value without complaint or negotiation at any merchant, from street vendors to supermarkets. Older, damaged riel notes circulate freely alongside pristine new notes. This fundamental difference in acceptance standards—pristine condition required for dollars, any condition acceptable for riel—creates another powerful de-dollarization incentive. Using riel eliminates the risk of having currency rejected due to minor damage, creasing, or wear. For a visitor or Cambodian using a $100 bill they have carried for weeks, even minor damage acquired through normal use or transport may render the note unspendable in Cambodia, while an equally worn riel note would be universally accepted.
The Psychological and Economic Transition
Perhaps the most significant transformation is psychological and generational rather than mechanical. For visitors and Cambodians alike, the removal of small-denomination dollars has made the riel psychologically “visible” in daily life in a way it was not previously. When ATMs force you to choose between $100 or riel, when merchants refuse dollars for small purchases, when change is automatically provided in riel—the riel becomes present and active in daily consciousness rather than a background currency that functioned as change-making convenience.
Younger Cambodians increasingly conduct entire days of transactions in riel and view the dollar as necessary only for major purchases or business transactions. This generation is developing psychological and practical familiarity with the domestic currency that their parents’ generation lacked. Over decades, this familiarity and comfort may create the foundation for deeper de-dollarization, not through policy mandate but through normalized practice and generational transition. A person who has conducted thousands of transactions in riel over their lifetime develops an intuitive comfort with the currency that cannot be created through policy decree alone.
This generational shift may prove to be Cambodia’s most important long-term monetary transformation. As older, dollar-accustomed generations transition out of the workforce and marketplace, and younger, riel-experienced generations replace them, the psychological barrier to riel-based large transactions may gradually diminish. De-dollarization will likely continue over decades through this mechanism of generational change, even if formal de-dollarization policy stalls or reverses at the political level.
