Illustrative image (Source: Internet) Jakarta (VNA) - The Philippines has agreed to join the local currencysettlement (LCS) framework which Indonesia, Thailand and Malaysia have operatedover the past two years, in an effort to expand intra-ASEAN trade andinvestment as well as strengthen the regional economic integration.
According tothe Jakarta Post, the agreement between the central banks of the Philippines(BSP), Indonesia (BI), Malaysia (BNM), and Thailand (BOT) was signed on thesidelines of the ASEAN finance ministers and central bank governors’ meetingsin Thailand on April 5.
The initiativeis part of continuous efforts to promote the wider use of local currencies tofacilitate and boost trade and investment in Southeast Asian countries.
However, it isworth pointing out that promoting the use of local currencies will only work ifthe transaction costs involved in changing one local currency to another arelow enough to be worthwhile, the Jakarta Post wrote, adding that it involvessetting up direct exchange markets between various major currencies, as well asensuring that there are sufficient liquidity and turnover.
Mostimportantly, an efficient currency exchange market among the four currencieshas to be developed to encourage businesses to use the LCS framework, thenewspaper said.
It reportedthat the 10 ASEAN countries have been integrating more in terms of trade.Though increasing, the share of intra-regional trade remains heavily reliant onthe US dollar. It is the dominant currency not only for invoicing andsettlements in intraregional transactions, but also as the reference currencyfor exchange rate policies and a reserve currency. This is because ASEAN doesnot have a common currency such as the euro.
According tothe Jakarta Post, the recent financial crises, however, have highlighted therisks of such an overdependence on the dollar, because a sudden shortage in itsliquidity can affect ASEAN economies irrespective of their creditworthiness. Inaddition, ASEAN currencies’ asymmetric response to dollar fluctuations, whichhas been observed during crisis periods in the past, can have a negative impacton production networks looking to expand in the region.
The newspaperunderlined that the availability and reliability of data related to invoice andsettlement currencies in the region also need to be improved. Such datadisclosures make for good information, particularly for small and mediumenterprises, which are starting to participate in cross-border transactions.
Therefore,promoting the use of local currencies can be a first step in enhancing the roleof ASEAN currencies and in reducing the risks of overreliance on the dollar,the Jakarta Post said.-VNA
