The National Bank of Cambodia's digital currency, Bakong, is set to significantly enhance the use of the riel, Cambodia’s local fiat currency, by facilitating cross-border QR code payments, according to central bank governor Chea Serey.

In an interview with Nikkei Asia, Serey explained that while over 80% of Cambodia's economy operates with the U.S. dollar under a dual-currency system, the authorities aim to increase the riel's presence, particularly in digital transactions where its usage is already higher.

Serey emphasized the importance of cross-border transactions in expanding the use of the riel. Bakong currently supports QR code-based payments between Cambodia and its neighboring countries, including Thailand, Laos, and Vietnam, and it is also compatible with China’s UnionPay system. By 2023, digital payments through Bakong had surged to a staggering $70 billion, nearly doubling Cambodia’s gross domestic product (GDP).

Launched in 2020, Bakong is designed to streamline payments for both individuals and businesses. Although often referred to as a digital currency, Bakong is distinct from traditional central bank digital currencies (CBDCs) as it is backed by both the Cambodian riel (KHR) and the U.S. dollar (USD).

Serey highlighted the complexities of internationalizing digital currencies, which require integrating diverse technologies across countries to address challenges such as capital flows and Know-Your-Client (KYC) processes. She indicated that the central bank is planning to introduce cross-border payments with India by June and is working on similar collaborations with Japan.

Enhancing Financial Inclusion and Economic Stability

The introduction of Bakong represents a significant step towards enhancing financial inclusion and economic stability in Cambodia. By promoting the use of the riel in digital transactions, the central bank aims to reduce the country’s heavy reliance on the U.S. dollar, thereby stabilizing the local economy and strengthening the national currency.

Future Prospects and Challenges

Looking ahead, Serey acknowledged the technical and regulatory challenges involved in the internationalization of digital currencies. These include ensuring seamless interoperability between different financial systems and maintaining robust security measures to prevent fraud and cyber threats.

However, the successful integration of Bakong into Cambodia’s financial ecosystem and its expanding cross-border functionality signify a promising future for digital currencies in the region. The planned collaborations with India and Japan are expected to further enhance Bakong’s utility and adoption, potentially setting a precedent for other countries exploring similar digital currency initiatives.

Conclusion

The Bakong digital currency is poised to play a crucial role in boosting the use of the Cambodian riel and modernizing the country's payment systems. As Cambodia continues to integrate Bakong with more international partners, the potential for increased economic stability and growth becomes increasingly evident. Governor Chea Serey's vision for a digitally integrated economy underscores the transformative impact that digital currencies can have on national and international financial landscapes.