The US dollar has long been the dominant currency in global trade. However, Bank Indonesia (BI) Governor Perry Warjiyo has expressed concerns about the challenges and risks that come with relying too heavily on a single dominant currency.
Speaking at the ASEAN+3 Finance Ministers’ and Central Bank Governors Meeting in Incheon, South Korea, Perry emphasized the importance of strengthening cooperation among ASEAN+3 countries to promote the use of local currencies for transactions and investments.
Perry highlighted the potential vulnerability and increased financial instability that can arise from depending too heavily on a dominant currency for international trade and investment settlement.
He urged ASEAN+3 nations to innovate and collaborate to maintain stability amidst high inflation, tighter liquidity, narrower policy space, and the strong influence of the US dollar.
To address these challenges, Perry called for greater connectivity in payment systems and wider use of local currencies for transactions. The AFMGM+3 welcomed the development of the Cross-Border Payment System in ASEAN+3, particularly the strengthening of Local Currency Transactions (LCT) in thematic discussions.
Bank Indonesia and the Bank of Korea have recently agreed to cooperate on using their respective local currencies for bilateral transactions between Indonesia and South Korea.
The signing of the memorandum of understanding was conducted during the AFMGM+3 meeting on Tuesday. This cooperation allows for bilateral transactions between the two countries to use their respective local currencies, contributing to promoting trade and deepening the local currency market in both countries.
Bank Indonesia has previously collaborated with the central banks of Malaysia, Thailand, Japan, China, and Singapore on similar bilateral agreements. Moving forward, bilateral cooperation on the use of local currencies will be expanded to all ASEAN member countries.
This move towards local currency transactions is expected to reduce the reliance on the US dollar and promote economic independence among ASEAN countries.
It also supports the vision of ASEAN+3 to strengthen regional financial cooperation and promote stability in the face of global economic challenges.