Indonesia, Malaysia, and Thailand Central Banks Agree on LCT, Moving Away from the Dollar?

ASEAN Members Agree to Reduce Use of US Dollar (photo: lucas Favre - Unsplash)

Bank Indonesia, the central bank of Indonesia, along with Bank Negara Malaysia and the Bank of Thailand, has come to a significant agreement aimed at fortifying their cooperation regarding the use of respective Local Currency Transaction (LCT) in bilateral transactions.

This milestone collaboration was formalized through the signing of a Memorandum of Understanding (MoU), a testament to the commitment of these three financial institutions to enhance the utility of local currencies within their regional economic interactions.

The signing ceremony, a momentous occasion in the world of finance, took place during the ASEAN Finance Ministers and Central Bank Governors Meeting (AFMGM) held in Jakarta. This gathering of financial minds provided the ideal backdrop for such a pivotal agreement to be inked.

Perry Warjiyo, the esteemed Governor of Bank Indonesia, articulated the significance of this strengthened partnership. He elucidated that this endeavor is an extension of a longstanding local currency settlement cooperation initiated back in 2018. Under the banner of “Local Currency Transaction” (LCT), this collaboration goes beyond the realms of trade and investment transactions.

It extends its reach into the intricate world of cross-border payment systems. Perry’s statement during the MoU signing event on Friday, August 25, 2023, underscored the holistic nature of this endeavor.

The primary objective of this LCT cooperation is to bolster macroeconomic stability, fortify the financial systems, and fortify the resilience of these nations in the face of increasing external economic volatility.

Perry elucidated, “This Memorandum of Understanding is a reflection of the ongoing and relentless efforts of the three central banks to augment the existing framework of local currency usage. It seeks to expand the use of local currencies to encompass a wide array of financial transactions, including payment settlements, capital account operations, and the intricate world of financial balances.”

This profound agreement is not just about monetary transactions; it also signifies a commitment. It symbolizes the unwavering commitment of Bank Indonesia, Bank Negara Malaysia, and the Bank of Thailand to bolster their cooperation in utilizing their local currencies in bilateral transactions.

The consensus among these central banks is that the expansion of the LCT cooperation will exert a positive influence on the stability of financial markets. Furthermore, it will serve as a catalyst for the deepening of local currency financial markets within these three nations.

In essence, this agreement stands as a testament to the dedication of these institutions in creating a financial ecosystem that is not only robust but also intrinsically linked to the shared interests of their respective nations.

It is a step towards financial self-sufficiency, stability, and prosperity, not only for these three countries but for the broader Southeast Asian region as a whole.