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Mr Sok Heng Lay
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2013 - Present : PhD Candidate, School of Economics, The University of Adelaide, Australia
2007 - 2009 : M.A., International Development Program, International University of Japan, Japan
2000 - 2004 : B.B.A., Finance and Banking, National University of Management, Cambodia
Awards & Achievements
Many countries have experienced high dollarization, which is characterized as the use of foreign currency, mainly the US dollar, in parallel with their domestic currency, in their development process. This prevalence is often significant in developing countries. Measuring the degree of dollarization by the ratio of foreign currency deposit to money supply, our study empirically examines how dollarization is associated with economic development that relates to the income level of the people, namely real GDP per capita. We conduct an in-depth analysis of the determinants of dollarization by constructing the panel dataset for 96 countries the period from 1990 to 2009. Our empirical results consistently show that the real income of the people, depreciation of exchange rate, trade openness, and political stability have some clear relationship with the degree of dollarization. In particular, we find a non-monotonic relationship between the income level and the degree of dollarization. As an economy grows in terms of the income level, dollarization becomes more intensified initially and then peaks out to decline. The exchange rate depreciation and trade liberalization are also the main driving forces to dollarization. Furthermore, the result also shows that stable political system could reduce the degree of dollarization.
There has been an ongoing debate on whether dollarization helps stabilize exchange rates for emerging economies. This paper discusses this issue in a highly dollarized country, Cambodia, by empirically examining the relationship between dollarization and exchange rate movements. The GARCH analysis suggests that dollarization induces the depreciation of the Cambodian riel as well as intensifies exchange rate variability. The result is consistent with the argument that dollarization is one of the crucial causes of exchange rate instability. Dollarization in Cambodia could be a constraint on poverty reduction since it tends to affect the living standard of the poor who earn the income in the riel through the depreciation of the currency and intensified volatility of exchange rates.
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