For many years, the U.S. dollar has been the most widely used currency in international markets, dominating international trade and capital flows. In order to become less reliant on the United States, numerous countries are electing to use other currencies instead of the U.S. dollar.
Just recently, the convening of ASEAN’s Finance Ministers and Central Bank Governors commenced in Indonesia. At the forefront of the agenda are talking to cut down dependency on US Dollar, Euro Yen and British Pound for financial transactions and instead utilize local currencies to complete settlements.
At the meeting, strategies to decrease reliance on major currencies through the introduction of Local Currency Transactions (LCT) were discussed. The LCT scheme is aimed at minimizing exposure to foreign currency exchange risks. Building on the success of the existing Local Currency Settlement (LCS) scheme, the development of a comprehensive ASEAN-wide LCS framework is now underway.
ASEAN’s cross-border digital payment system is on the verge of further expansion, facilitating the use of local currency for intra-ASEAN trade. This would open up more opportunities for these states to conduct business with each other. In November 2022, Indonesia, Malaysia, Singapore, the Philippines and Thailand finalized their arrangement to cooperate with one another. This agreement promises a more prosperous future for all involved parties.
On March 27, the Bank of Indonesia announced its intention to introduce a domestic payment system domestically. This was in response to the banking regulator’s directives.
President Joko Widodo has implored regional governments to begin utilizing credit cards from local banking institutions, as a substitute for foreign payment services, gradually put into effect over time. He believed that Indonesia should protect itself from external geopolitical unrest, illustrating the economic sanctions impacting Russia due to the Ukraine crisis imposed by the US, EU and their allied nations.
Widodo highlighted the importance of shifting from Western-based payment systems in order to safeguard transactions from any potential geopolitical fallouts.
According to Reuters, India and the UAE are in discussions to swap rupees for non-oil commodities instead of dollars as a means of trading. This is an ongoing trend happening across Asia.
In an unprecedented move, Saudi Arabia has also declared that it is willing to accept Yuan as an alternative to the US dollar for oil trading with China. This recent development has been followed by news of Russia and China also coming to an agreement on trading in Yuan.
Brazil and Argentina, the two biggest economies in South America, are discussing the possibility of introducing a shared currency for Latin America. This could have far-reaching implications for the entire region.
Are we going to see the end of the U.S. dollar’s global dominance within a couple of years’ time? Only time will tell.