I have just returned from a trip to Cambodia.I was surprised that the US$ is used in most transactions,even workers get paid in US$.How can an economy function on a proxy currency?Where does an employer get enough US$ to pay wages,and what effect will this have on their domestic currency,the Reial?
Answer Thank you for your query. This is what is called "dollarization" of an economy. It occurs, in general, when the domestic currency is volatile and people turn to a hard currency. Other examples are Panama and Argentina --in the nineties. People would purchase the foreign exchange in any exchange house in the free market -- I do not know what is going on in Cambodia right know, am assuming-- If the government were to control the foreign exchange market, black market outfits would certainly fill in. The effect on the domestic currency is that it becomes inexistant and the demand for domestic currency is minimal. Furthermore, it may be used as a unit of account.
Hope this helps. Good luck!!!!
