Under its chairmanship of ASEAN this year, Indonesia is placing a strong emphasis on the expansion and enhancement of the region’s local currency transaction (LCT) network.
The move is aimed at fortifying trade and investment, streamlining cross-border payments, and advancing financial asset substitutability.
Iss Savitri Hafid, the Director of Bank Indonesia‘s (BI’s) International Department, shed light on this focus during a recent discussion.
“Indonesia, as the ASEAN chair, recognizes the critical role of local currency transactions in the region. Supporting the growth of the LCT network can significantly bolster economic engagements within ASEAN,” she stated.
ASEAN leaders have echoed Indonesia’s stance on this, signifying a unanimous agreement on the importance of LCTs for the region.
With ASEAN being a pivotal economic bloc, enhancing intra-regional trade and investment using local currencies can lead to reduced dependency on major global currencies, potentially saving costs and mitigating exchange rate risks.
Taking concrete steps towards this goal, the ASEAN Finance Ministers and Central Bank Governors (AFMGM) have resolved to establish a dedicated task force. This body’s mandate will be to champion local currency transactions and to set forth guiding principles for the creation of the ASEAN LCT Framework.
Such a structured approach can streamline and standardize LCT practices across member nations, ensuring smoother transactions.
Furthermore, Hafid announced the anticipated collaboration among ASEAN nations in the domain of payment systems. She said:
In the next three to four years, we foresee all ASEAN members ratifying a Memorandum of Understanding (MoU) dedicated to interlinking their payment systems. This connectivity will be a significant stride in realizing the vision of a cohesive and integrated ASEAN economic community.
While the macroeconomic policy mix and other financial tools are undeniably crucial for the region’s stability and growth, the specific focus on local currency transactions underscores the evolving dynamics of intra-regional trade and investments. By championing LCTs, ASEAN is not only looking to bolster economic ties but also to build resilience against external financial shocks.
