Four CBs Agreed to Use Local Currency for Trade Transactions
The four central banks commitment was agreed in the middle of the ASEAN Finance Minister & Central Bank Governors Meeting in Chiang Rai, Thailand on Friday (05/04). Photo by Bank Indonesia.
JAKARTA (TheInsiderStories) – Bank Indonesia (BI), Bank Negara Malaysia (BNM), Bangko Sentral ng Pilipinas, and Bank of Thailand (BoT) collaborate to use local currency settlement (LCS) framework for the Southeast Asian (ASEAN) trading.
The four central banks (CB) commitment was agreed in the middle of the ASEAN Finance Minister & Central Bank Governors Meeting in Chiang Rai, Thailand on Friday (05/04).
There were three letters of intent (LOI) signed at the meeting such between Bangko Sentral and Pilipinas and BI, Bangko Sentral ng Pilipinas and BNM, also Bangko Sentral ng Pilipinas and BoT.
The three LOIs are intended to reflect the common interest in exploring the possibility of establishing an LCS framework among the four countries. The LCS framework is expected to facilitate economic and financial activities between Indonesia, Malaysia, the Philippines, and Thailand more efficiently.
In addition, BI and the Bank of Thailand also agreed to explore the possibility of expanding the scope of the current LCS framework.
The commitment is a series of achievements on the signing of two Memorandum of Understandings between Bank Indonesia-Bank Negara Malaysia and Bank Indonesia-Bank of Thailand to encourage the completion of bilateral trade transactions using the local currencies of each country in 2016.
Since then, there has been an increase in the use of currencies local to settle bilateral trade transactions, along with a decrease in foreign exchange rate margins.
The total trade transactions through LCS continue to show improvement. In the first quarter of 2019, total trade transactions through LCS using Baht reached $13 million, an increase compared to the same period in 2018 of $7 million.
Meanwhile for LCS transactions using the Malaysian Ringgit reached $70 million, a sharp increase compared to the same period in 2018 of $6million.
Such cooperation will provide benefits for business people through reducing transaction costs and increasing efficiency in trade settlement. In addition, this will also provide more options for businesses in choosing currencies for settlement of trade transactions, thereby reducing exchange rate risk, especially amid the current turbulent global financial market conditions.
This cooperation framework between the four countries will encourage the use of a wider local currency in the ASEAN economic community and encourage further development of the foreign exchange market and financial markets in the region in support of broader economic and financial integration.
Written by Staff Editor, Email: theinsiderstories@gmail.com