sCambodia: Exploiting the Power of the Dollar

Originally written 2011–11–25
Note: I’m going through archives of my old private blog and reposting stories that I think others might enjoy.

Cambodian Market

Cambodian Scams have been written about extensively. That said, I’ve seen the bootlegged materials, the imported cheap goods, the ‘helpful locals’ and definitely not encountered the ‘fake drugs’ or ‘rental’ scams. That link is actually quite fascinating now that I’m here. But that’s not what I want to talk about. I want to talk about the basis of the Cambodian tourist economy. It’s been designed to exploit the tourist perfectly, while maintaining a façade of innocence. Here’s how it works:

  • Everything is sold in dollars. This is the Wikipedia explanation of why the local currency isn’t used widely:
    The riel (KHR) is the currency of Cambodia. There have been two distinct riel, the first issued between 1953 and May 1975. Between 1975 and 1980, the country had no monetary system. A second currency, also named “riel”, has been issued since April 1, 1980. However, this currency has never gained public acceptance, with most Cambodians preferring gold or foreign currency. The UN peacekeeping operation of 1993 injected a large quantity of U.S. dollars into the local economy. As a result, the dollar has become the country’s common currency. Riel notes are used for fractional dollar amounts as U.S. coins are not in circulation.
  • $1 = 4000 Riel. So if something costs $1.25, you are expected to give a $1 note and a 1000 Riel note.
  • There are two separate prices for everything: the price for locals, and the price for tourists. From my observations, a breakfast meal at a local side shop will cost the tuk tuk driver 50–100 Riels, while costing the tourist $3. Note the markup.

Think about the last time you traveled to a developing nation and bought a fridge magnet, or a postcard, or any memento. It probably cost a fraction of a dollar. Here, the minimum it can cost is a dollar. And you, as a tourist, feel bad to negotiate under a dollar, because to you, that is the smallest denomination available. On the other hand, to the Khmer people, it is a lot of money. To put things in perspective, the minimum wage in Cambodia is $45 a month while the per capita income is $321 per year [source, and an interesting read actually]. If they can eat out for 50–100 Riel, imagine the cost of the average meal at home. So $1, is a huge amount for a pineapple on the street or a scarf that cost 50–100 Riel (40–80x markup!) to the hawker. Because the cost of living for the locals is on a completely different scale than the currency of spending for the tourists, this mechanism works beautifully. Everyone feels happy that they got a good deal and the world goes on.

A side-effect of this dollar-based economy is having no idea about the amount of money in circulation in the Cambodian economy. While this doesn’t affect the average traveler, having control over the amount of money in circulation is a way of maintaining the stability of the economy as well as controlling inflation. In Cambodia, the economy is completely dependent on external forces (i.e. other economies). I guess this works, and is good, because of the instability of the local currency, government and high level of corruption. And to the tourist, you don’t feel like you are spending a lot because of the large number of zeroes on each bill…

Siem Reap Old Market