Business & Economy

In a Move Away From US Dollar, ASEAN Calls for Local Currency Usage in Trade

© AFP 2023 MAST IRHAMA boat carrying ASEAN leaders and their spouses sails for a sunset view event on the sidelines of the 42nd Association of Southeast Asian Nations (ASEAN) Summit in Labuan Bajo on May 10, 2023.
A boat carrying ASEAN leaders and their spouses sails for a sunset view event on the sidelines of the 42nd Association of Southeast Asian Nations (ASEAN) Summit in Labuan Bajo on May 10, 2023. - Sputnik India, 1920, 10.05.2023
Five of the biggest southeast Asian economies—Singapore, Malaysia, Indonesia, the Philippines and Thailand—have already signed an MoU to encourage the use of local currencies in trade settlements.
The 10-member Association of South East Asian Nations (ASEAN) has formally announced that it would “encourage the use of local currencies in cross-border transactions” in a bid to promote regional economic integration, as per a joint statement by the grouping at the ongoing 42nd ASEAN Summit in the town of Labuan Bajo in Indonesia.
The statement underscored that the move would reduce region’s vulnerability to “external volatility” and lower the cost of cross-border transactions, while also improving overall financial architecture and accelerate the adoption of digital payment systems.
The nations would “engage and collaborate” with ASEAN’s foreign partners, multilateral groupings and the private sector to promote local currency transactions, the statement added.
Furthermore, the ASEAN states would introduce an ‘ASEAN Local Currency Transaction Framework’ and link it with other cross-border payment initiatives.
The grouping said that the finance ministers of ASEAN states and the central bank governors have been tasked to find means to expand the regional payment connectivity as well as explore the development of the ASEAN Local Currency Transaction Framework.
The Southeast Asian nations said that the plan to encourage the usage of national currencies was in line with ‘ASEAN Economic Community Blueprint 2025’, which envisions creating a “deeply integrated” ASEAN economy.
Addressing the meeting earlier in the day, Indonesian President Joko Widodo said that economic integration and unity would play a central role in “regional peace and development”.
“In the future, ASEAN must strengthen its economic integration, strengthen inclusive cooperation, including the implementation of RCEP (Regional Comprehensive Economic Partnership), and strengthen the health, food, and energy architecture, as well as maintain the financial stability,” the Indonesian leader told his ASEAN counterparts.

The Growing Trend of De-Dollarization

Many low and middle-income nations have been looking to move away from the US dollar in recent years, a trend which has further picked up pace in the wake of G7 bloc of rich nations imposing sanctions against Russia and excluding it from the SWIFT network.
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Around two-thirds of the trade between Russia and China is taking place in local currencies, as per official estimates. Bilateral trade is set to hit a record high of $200 billion this year.
The Foreign Trade Policy (FTP) of India, the world’s fifth biggest economy, in March said that New Delhi would “encourage” international trade settlements in rupees.
Malaysia, which is one of the bigger ASEAN economies, is one of the countries with which New Delhi has announced a mechanism for settling trade in local currencies.
According to officials, Indonesia is also in talks with New Delhi to introduce a similar mechanism.
While the US dollar remains the predominant global currency, its share in financial transactions has been receding in the last few years: acccording to the International Monetary Fund (IMF), the share of US dollar reserves held by central banks in 2020 fell to 59 percent—its lowest level in 25 years.