Cambodia stands out among ASEAN+3 member economies for its high degree of dollarization. While dollarization has facilitated financial transactions, trade and investment, it also requires banks to meet liquidity demand in both US dollars and Cambodian riel. Amid heightened global financial market volatility, where banks hold their US dollar liquidity—and how readily it can be accessed when needed—matters increasingly for policymakers, banks and other market participants.

A recent AMRO analysis examines US dollar liquidity conditions in Cambodia’s banking system. It finds that banks’ US dollar liquidity buffers held at the National Bank of Cambodia (NBC) have gradually declined in recent years, while banks have increased their overseas assets. This underscores the importance of ensuring that Cambodia’s banking system can mobilize US dollars quickly during periods of market volatility.

Why onshore liquidity matters

The scale of the liquidity challenge is significant. At end-2025, 83.4 percent of broad money was denominated in US dollars. This means banks must be able to meet substantial demand for US dollars. However, the NBC’s ability to supply US dollars as a lender of last resort is more constrained than that of most central banks, which issue the currency predominantly used in their economies.

Banks can draw on three main sources of US dollar liquidity: US dollar-denominated assets held at the NBC, including required and excess reserves and Negotiable Certificates of Deposit; foreign assets held overseas; and other sources, including liquid assets held at other banks and loans due for repayment in the short term.

Public data on banks’ US dollar assets held overseas and at other banks are limited. AMRO therefore uses banks’ US dollar liquidity held at the NBC as a proxy for onshore liquidity conditions. Relative to deposits, this measure has declined gradually since 2021 (Figure 1), indicating that the liquidity held at the NBC has fallen relative to banks’ deposit base.

What could affect US dollar liquidity conditions?

The current high level of nonperforming loans adds to the challenge. By reducing interest and principal repayments, nonperforming loans weaken banks’ cash inflows. Although they are not directly linked to US dollar liquidity risk, depositor herding could amplify liquidity pressures at stressed banks through indirect channels.

At the same time, Cambodian banks have increased their overseas investments. Since 2024, they have accumulated net foreign assets at a much faster pace than the NBC has accumulated foreign exchange reserves, pointing to net US dollar outflows.

Between 2024 and 2025, banks’ net foreign assets increased by USD10.5 billion—three times the increase in foreign exchange reserves over the same period. Banks sharply increased their overseas asset holdings while repaying foreign liabilities, effectively deploying more US dollar liquidity offshore (Figure 2).

This behavior can be rational for individual banks seeking higher returns and greater diversification. Yet what makes sense for each bank can also reduce the amount of US dollar liquidity available onshore.

There is an important counterpoint. Discussions with market participants suggest that many of these foreign assets are trade-settlement funds and short-term deposits. If they are sufficiently liquid and can be redirected readily to the domestic market when needed, they could provide an additional liquidity buffer while generating higher returns.

Offshore assets could therefore complement banks’ domestic liquidity buffers, but only if they remain sufficiently liquid and can be redirected readily when needed. Greater reliance on offshore liquidity could otherwise make it more difficult to respond quickly to domestic liquidity pressures, particularly during periods of market stress.

Strengthening US dollar liquidity resilience

Policymakers should continue to monitor US dollar liquidity conditions closely and proactively address potential liquidity pressures.

Further development of Cambodia’s interbank market—including interbank lending and foreign exchange swaps—would allow banks to borrow and lend US dollars more effectively among themselves. Expanding the availability of domestic US dollar-denominated assets, such as government bonds, would also give banks more options for investing their US dollar liquidity at home.

Over the longer term, the NBC’s ongoing de-dollarization efforts remain an important structural measure for reducing the financial system’s reliance on US dollar liquidity and the associated vulnerabilities.