By LYDIA NATHAN / Pic By MUHD AMIN NAHARUL
Central banks in Malaysia, Thailand, Indonesia and the Philippines have joined hands to promote the local currency settlement of bilateral trade by reducing transaction cost and enhancing the efficiency of trade settlements.
According to a joint statement issued by Bank Indonesia (BI), Bank Negara Malaysia (BNM), Bangko Sentral ng Pilipinas (BSP) and Bank of Thailand (BoT), the central banks had signed two bilateral Memoranda of Understanding (MoUs) between BI and BNM, as well as between BI and BoT back in 2016.
“Since then, we have seen an increase in the usage of local currencies for trade and investment as well as a decrease in the foreign exchange rate spreads,” the statement said.
As such, BI and BoT have agreed to start exploring the possibilities of expanding the existing framework.
In addition, governor of BSP Benjamin E Diokno also signed three letters of intent (LoIs) with BNM governor Datuk Nor Shamsiah Mohd Yunus, BI governor Perry Warijiyo, and BoT governor Veerathai Santiprabhob.
The three LoIs will represent a mutual interest in the possibility of establishing Local Currency Settlement Frameworks between the four countries.
“The arrangements are expected to efficiently facilitate economic and financial activities between Indonesia, Malaysia, the Philippines and Thailand,” the statement said.
It added that the collaboration would allow for businesses to choose currencies for trade settlements, thus reducing their foreign-exchange (forex) risks, particularly amid the current volatile financial market conditions.
“This framework will pave the way for wider use of local currencies in the Asean Economic Community and spur further development of the regional forex and money markets, in support of wider economic and financial integration,” it said.