Why Cambodia’s central bank likes renminbi debt and gold

The National Bank of Cambodia has seen its reserves swell by 20% to 30% a year. That’s leading it to invest in US Treasuries but also renminbi bonds and gold.
Why Cambodia’s central bank likes renminbi debt and gold

The National Bank of Cambodia (NBC) is seeing its foreign currency reserves rise by 20% to 30% a year, courtesy of sustained foreign direct investment (FDI) into the country, and it aims to continue adding these funds to its existing investments.

That includes US Treasuries, some corporate and emerging markets debt, renminbi-denominated debt and a recently built position in gold, said Vibunrith Long, deputy director of the country's exchange management department.

Speaking at the 11th AsianInvestor Southeast Asian Institutional Investor Forum on December 4 in Singapore, Long described how NBC's reserves have climbed from just $300 million in 1998, a year of national reconciliation following the country's civil war, to today’s level of $16 billion.

Vibunrith Long
National Bank of Cambodia

The central bank has historically invested most of its money in US Treasuries, but this has changed over the past five years, Long said.

“When I joined in 2014 we started outsourcing [some of our reserves] to different managers, and we now have 11 mandates and 10 managers in areas like US corporate bonds and Asian sovereign bonds, to name just a few,” he said.

NBC has also begun building a position in renminbi debt, reflecting the country’s strong trading relationship with China.

“The renminbi in our reserves is a sizeable portion and more than what other central banks hold. But the trade longs are very strong between China and Cambodia in terms of imports and FDI flows and also foreign currency debt [denominated] in renminbi,” Long said.

The accumulation of renminbi currency has led the central bank to increasingly invest in Chinese bonds. Initially, it did so via the qualified foreign institutional investor quota of a fund manager but more recently it has done so directly via the interbank bond market.

Long said his organisation has so far mainly invested in Chinese central government and policy bank bonds, as these still yield “nearly 2%,” which as he noted is more appealing than the virtual zero rates available in Europe, particularly once inflation is included.

However, Long said the central bank is divided over whether to expand this investment approach into the bonds of other policy banks: “We are still exploring; no decision has been made yet.” 

Being a central bank, NBC keeps most of its assets short term and liquid. But it also has a bit of a cushion. It invests short-term liquid assets in a liquidity tranche, then fills an investment tranche, and only then it invests into a third, long-term tranche consisting of offshore debt with a little more risk attached, Long said.

“In terms of reserve adequacy we have more than five months of import cover, we can cover more than 20% of base money and more than all the foreign debt of the country,” he said. “That’s why we are able to go a bit more long term [with our investing].”

Even then the maturities are typically just for three or four years. NBC also only invests in emerging market sovereign debt with a ‘BBB’ rating or higher, or corporate debt with a minimum ‘A’ rating.


In addition, the central bank has been building a position in gold, which Long said has been built with a mixture of futures and the physical commodity. This position now represents about 5% of its reserves.

“We started accumulating US Treasuries from the money market and also gold, which our management thought was a very good defensive asset to have. And they were right, as its value has risen,” Long said.

Gold’s value per ounce has risen from a low of $1,176 on August 17, 2018 to reach $1,474 on December 4 of this year, according to “Our management likes gold at the moment especially with all the market uncertainty, and so we might buy more gold, but we won’t make a market impact,” Long said.

Long added that there was little chance the central bank would diversify into other asset areas such as equities or private assets, even though the central bank is continuing to accumulate reserves. 

“It’s a bit far off for us to talk about equity or alternative investments,” he noted. “The most exotic asset for most central banks is equity, but for us that remains quite a way off.”

Instead, NBC looks set to keep adding to its various fixed income investments. “The mandates we have right now I think are good enough in terms of the risk profiles we want. We may expand our existing mandates rather than asset classes altogether.”

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