ABSTRACT
Payments dollarization requires firms to take on the burden of currency exchange, even for domestic transactions. The burden would become more prevalent transiently during the process of unravelling Cambodia’s high level of dollarization. Firms’ choice of currency exchange methods between banks and money changers has a significant impact on the economy as currency exchange at banks potentially adds to financial development, whereas exchange at money changers does not. Our study examines firms’ decisions about currency exchange method choices. The empirical analysis using the bivariate probit model reveals that firms’ heavy use of cash and their perception of currency exchange service costs were associated with their preference for money changers over banks. The empirical results suggest that the concurrent promotion of cashless payments with de-dollarization measures and the public disclosure of currency exchange service costs would enhance the use of banks for currency exchange.
