ASEAN Finance Ministers and Central Banks Consider Dropping US Dollar, Euro and Yen, Indonesia Calls for Phasing Out Visa and Mastercard

An official meeting of all ASEAN Finance Ministers and Central Bank Governors kicked off on Tuesday (March 28) in Indonesia. Top of the agenda are discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies.

The meeting discussed efforts to reduce dependence on major currencies through the Local Currency Transaction (LCT) scheme. This is an extension of the previous Local Currency Settlement (LCS) scheme that has already begun to be implemented between ASEAN members.

This means that an ASEAN cross-border digital payment system would be expanded further and allow ASEAN states to use local currencies for trade. An agreement on such cooperation was reached between Indonesia, Malaysia, Singapore, the Philippines, and Thailand in November 2022. This follows from Indonesia’s banking regulator, stating on March 27 that the Bank of Indonesia is preparing to introduce its own domestic payment system.

Indonesian President Joko Widodo has urged regional administrations to start using credit cards issued by local banks and gradually stop using foreign payment systems. He argued that Indonesia needed to shield itself from geopolitical disruptions, citing the sanctions targeting Russia’s financial sector from the US, EU, and their allies over the conflict in Ukraine.

Moving away from Western payment systems is necessary to protect transactions from “possible geopolitical repercussions,” Widodo said.

Of the ASEAN nations, just Singapore has enforced sanctions on Russia, while all other ASEAN nations continue to trade with the country. There has been alarm at being caught up in US-led secondary sanctions, as are short to impact Central and South Asia countries involved in cotton manufacturing, a major industry in the region employing millions of people.

Foreign investors in Asia may wish to consider the amount of US dollars, Euros and Yen held in their accounts in light of a pending ASEAN currency trade decision. Professional discussions should be taken regarding any movement of company funds to alternative currencies.