Indonesia-Philippines-Thailand-Malaysia Agree Not to Use US Dollars for Trade

Bank Indonesia (BI), Bank Negara Malaysia, Bangko Sentral ng Pilipinas, and Bank of Thailand are committed to continuing to encourage cooperation in the settlement of bilateral trade transactions in local currencies (local currency settlement framework) in the region.

The commitment of the four central banks was agreed in the middle of a series of meetings of the Ministers of Finance and Governors of the ASEAN Central Banks (ASEAN Finance Minister & Central Bank Governors' Meeting / AFMGM) on Friday (5/4) in Chiang Rai, Thailand.

Written statement of Executive Director of BI Communication Department Onny Widjanarko in Jakarta on Friday explained that the commitment was a series of achievements on the signing of two memorandum of understanding between BI-Bank Negara Malaysia and BI-Bank of Thailand to encourage the completion of bilateral trade transactions using their respective local currencies country in 2016.

Since then, he said, there has been an increase in the use of local currencies to settle bilateral trade transactions, along with a decline in foreign exchange rate margins.

The total trade transactions through LCS continue to show improvement. In the first quarter of 2019, the total trade transactions through LCS using the Thai baht reached US $ 13 million, equivalent to Rp185 billion, an increase compared to the same period in 2018 amounting to US $ 7 million or equivalent to Rp.96 billion.

While for LCS transactions using Malaysian ringgit reached 70 million US dollars, equivalent to Rp1 trillion, a sharp increase compared to the same period in 2018 amounting to six million US dollars, equivalent to Rp83 billion.

He said, the cooperation would provide benefits to business actors through reducing transaction costs and increasing efficiency in trade settlements.

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 volatile 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.