The Digital Leap: Assessing the Impact of Payment Technologies on Currency Choices in Cambodia

Lay, Sok Heng and Sam, Vichet (2025): The Digital Leap: Assessing the Impact of Payment Technologies on Currency Choices in Cambodia.

Abstract

Dollarization poses significant challenges to monetary policy effectiveness and heightens economic vulnerability to external shocks, prompting calls for de-dollarization and greater promotion of local currency use. This paper investigates the role of digital payment in fostering the use of Cambodia’s local currency, the Khmer riel (KHR), in an economy that has remained heavily dollarized since the 1990s. First, we develop a simple theoretical model to explain how digital payment has the potential to promote the use of KHR. Second, using unique survey data collected in 2023 from workers in Cambodia’s garment, footwear, and textile sectors, we apply two advanced econometric approaches to address endogeneity in digital payment adoption: i/-A linear regression model with endogenous treatment effects estimated via maximum likelihood, and ii/-An endogenous treatment-effects model allowing for heterogenous impacts of digital payment based on households’ characteristics. These models enable comparison between observed outcomes and counterfactual scenarios—that is, what individuals’ KHR usage would have been had they use or do not use digital payment. Empirical results indicate that digital payment significantly increases KHR usage, raising total expenditure in KHR by 4.52 percent to 10.41 percent relative to the case without digital payment. However, the analysis also reveals important demographic disparities: younger, urban, and more educated individuals show stronger preferences for the US dollar. Hence, while digital payment supports broader use of the local currency, their long-term effectiveness relies on complementary measures such as promoting KHR-denominated pricing, salary payments, and expanding KHR-linked digital services. Therefore, the study emphasizes the necessity of coordinated efforts among relevant stakeholders to ensure sustained progress in the promotion of local currency.

• Item Type: MPRA Paper
• Language: English
• Keywords: Digital payment, Dollarization, Local Currency, Endogenous treatment effects
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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