Southeast Asia central banks push local currency settlement for trades

MANILA, Philippines — Central banks in the Philippines, Indonesia, Malaysia and Thailand are pushing for the greater use of local currencies in settlement of trade and other areas to cut transaction costs and reduce foreign exchange risks.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno inked three letters of intent (LOI) as part of a regional cooperation to promote local currency settlement of the four central banks.

Diokno signed the LOIs on local currency settlement framework with Bank Indonesia Governor Perry Warjiyo, Bank Negara Malaysia Governor Nor Shamsiah Yunus, and Bank of Thailand Governor Veerathai Santiprabhob.

In the joint statement, the proponents said the three LOI represent the concrete efforts of the four central banks in promoting their mutual interests by the potential establishment of local currency settlement frameworks among them.

Bank Indonesia and Bank of Thailand have likewise agreed to start exploring the possibility of expanding the scope of their existing local currency settlement framework.

“The greater use of local currencies in settlement of trade and other areas is aimed at reducing the transaction costs and foreign exchange risks, particularly amidst the current volatility faced by currencies in advanced economies,” the joint statement read.

It added the wider use of local currencies in the ASEAN Economic Community enhances economic and financial integration, as well as spurs further development of the foreign exchange and financial markets, within the region.

The letter of intent expands the memoranda of understanding between Bank Indonesia and Bank Negara Malaysia as well as between Bank Indonesia and Bank of Thailand in 2017.

“The progress toward greater financial integration in the region is a welcome development as we witness the expansion of similar arrangements that were launched in 2017,” the statement said.