Asean finance ministers and central banks are considering abandoning the dollar, euro and yen. In addition, Indonesia is advocating the phasing out of Visa and MasterCard.
Asean is the Association of Southeast Asian Nations. It is made up of ten member states: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. It is headquartered in Jakarta, Indonesia, and has numerous offices and administrative centers throughout the region.
A formal meeting of all the Association’s finance ministers and central bank governors began in Indonesia on Tuesday. On the agenda were discussions on reducing reliance on financial transactions in the U.S. dollar, euro, yen and pound sterling and moving to local currency settlements.
The meeting discussed efforts to reduce reliance on the major currencies through the Local Currency Settlement system. This is an extension of the local currency settlement system that has already begun to be implemented among Asean members.
This would mean expanding Asean’s cross-border digital payments system and allow Asean states to use local currencies for trade. Indonesia, Malaysia, Singapore, the Philippines and Thailand reached an agreement on this cooperation in November 2022. Bank Indonesia has announced that it is preparing to introduce its own payment system.
Indonesian President Joko Widodo has urged regional governments to start using credit cards issued by local banks and to phase out the use of foreign payment systems. He said Indonesia needed to protect itself from political disruptions, citing sanctions against the Russian financial sector by the United States, the European Union and its allies due to the Ukraine War.
Moving away from Western payment systems is necessary to protect transactions from “possible geopolitical repercussions,” Widodo said.
Among the Asean countries, only Singapore has implemented sanctions against Russia, while all others continue to trade with Russia. Concerns have arisen about being caught up in secondary sanctions imposed by the United States, which could affect Central and South Asian countries involved in cotton manufacturing, a major industry in the region, employing millions of people.
Foreign investors in Asia may want to review the amount of US dollars, euros and yen they hold in their accounts in light of an impending Asean decision on foreign exchange trading.
China is determined to challenge the hegemony of the dollar in international trade and impose its own currency, at least in its own import and export operations.
To reduce its dependence on the greenback, China has closed deals with countries such as Russia and Argentina.
On Wednesday it did the same with Brazil. They signed an agreement to trade between the two countries exclusively in yuan and reais, without dollars. China is Brazil’s largest economic partner.
On Tuesday, oil company TotalEnergies completed its first liquefied gas transaction in yuan with Chinese hydrocarbon giant CNOOC. The multinational will export 65,000 tons of liquefied gas from the United Arab Emirates to China.
The yuan transaction was closed through the Shanghai Petroleum and Natural Gas Exchange (SHPGX), a platform specially created by China for the import and export of hydrocarbons paid in yuan, with a branch especially dedicated to liquefied gas from 2020.
During a December visit to Riyadh in Saudi Arabia, Xi Jinping called on Gulf countries to use this platform to sell their hydrocarbons in yuan to China.
In addition, Saudi Arabia has signed the Memorandum of Association with the members of the Shanghai Cooperation Organization, which is led by China and Russia (*). The signing comes just weeks after China facilitated the resumption of diplomatic relations between Saudi Arabia and Iran.
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