ASEAN Countries Take Steps to Reduce Reliance on US Dollar for Trade Settlements – On March 30 and 31, the finance ministers and central bank governors of the Association of Southeast Asian States (ASEAN) met in Bali, Indonesia. Reducing dependence on western currencies such as the U.S. dollar was one of the topics they discussed. Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam are all members of ASEAN.
Six international organizations were also represented at the meeting: the Asian Development Bank (ADB), the ASEAN+3 Macroeconomic Research Office (AMRO), the International Monetary Fund (IMF), the Financial Supervisory Board (FSB), and the Bank for International Settlement (BIS).
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At the conclusion of the two-day meeting, the ASEAN finance ministers and central bank governors issued a joint statement in which they agreed to “reinforce financial resilience, among others, through the use of local currency to support cross-border trade and investment in the ASEAN region.”
Using their Local Currency Transaction (LCT) system was one of the strategies considered by the ASEAN finance chiefs in order to wean themselves off the U.S. dollar. This method is an expansion of an earlier ASEAN settlement system that permits settlements in local currencies.
Recently, Indonesian President Joko Widodo urged regional administrations to begin using credit cards issued by domestic banks and to phase out the use of international payment systems. He explained that this modification is important to safeguard Indonesia against geopolitical shocks, citing restrictions put on Russia’s financial sector as a result of the Ukraine conflict.
Moving away from western payment systems is necessary to protect financial transactions from “possible geopolitical repercussions,” Widodo described, adding: “Be very careful. We must remember the sanctions imposed by the U.S. on Russia.” The Indonesian president warned that the sanctions imposed on Russia had exposed the vulnerability of countries that rely on foreign payment systems.
He stressed the importance of Indonesia preparing for the prospect of future penalties of a similar nature. President Susilo Bambang Yudhoyono argued that adopting local payment systems would protect Indonesia’s economy from foreign shocks while simultaneously bolstering the domestic economy through the promotion of local banks and businesses.