Four Central Banks in ASEAN to Establish Cooperation

Jakarta, InfoPublik – Bank Indonesia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, and Bank of Thailand are committed to boost cooperation in local currency settlement (LCS) framework for bilateral trade transactions in the region.

The commitment of the 4 central banks was agreed upon in the middle of ASEAN Finance Ministers’ and Central Bank Governors’ Meeting today at (4/5) in Chang Rai, Thailand. The meeting managed to generate three Letters of Intent signed between (1) Benjamin E. Diokno, Bangko Sentral ng Pilipinas Governor, and Perry Warjiyo, Bank Indonesia Governor; (2) Benjamin E. Diokno, Bangko Sentral ng Pilipinas Governor, and Nor Shamsiah binti Mohd Yunus, Bank Negara Malaysia Governor’ (3) Benjamin E. Diokno, Bangko Sentral ng Pilipinas Governor, and Veerathai Santiprabhob, Bank of Thailand Governor.

Such was the written statement of Bank Indonesia’s Communication Department Executive Director, Onny Widjanarko, that was received in Jakarta, Monday (4/8).

Onny explained that the three LoIs reflect a common interest in exploring the possibility of exploring an LCS framework in the four countries. The framework was expected to facilitate economic and financial activities between Indonesia, Malaysia, the Philippines, and Thailand in a more efficient manner.

“In addition, Bank Indonesia and Bank of Thailand also agreed to explore the possibility of expanding the current LCS framework coverage,” said Onny.

According to him, the commitment was part of achievements on signing of 2 (two) Memorandum of Understanding between Bank Indonesia-Bank Negara Malaysia and Bank Indonesia-Bank of Thailand to encourage local currency settlement (LCS) for bilateral trade transactions in 2016.

Since then, there was an increase in the use of local currencies for settlement of bilateral trade transactions that was in line with decrease in margin rate of foreign currency. Total LCS trade transactions continues to show an increase.

In the first quarter of 2019, total LCS transactions in Baht (THB) reached US$13 million (equal to Rp185 billion), an increase compared to the same period in 2018 at US$7 million (equal to Rp96 billion). Meanwhile, LCS transactions in Ringgit (MYR) reached US$70 million (equal to Rp1 trillion), a significant improvement compared to the same period in 2018 that amounted to US$6 million (equal to Rp83 billion).

“The cooperation will provide benefits for business players through reducing transaction costs and improving efficiency in trade settlements,” he said.

In addition, it will also provide more options for business players in selecting currencies for trade settlements, which consequently reducing foreign exchange rate amid the current volatile global financial market.

“The cooperation framework between the four countries will encourage a wider use of local currencies in ASEAN economic community and further develop foreign currency market and financial market in the region for supporting broader economic and financial integration,” he concluded.

Reporter: Isma

Translator: Wisnu Wardoyo