Bank Indonesia and ASEAN Central Banks Encourage Cross-Regional Local Currency Transactions

Central banks and finance ministries in ASEAN countries have agreed to continue the three priority agendas of Indonesia’s previous Chairmanship in ASEAN 2023. This agreement emerged at the ASEAN Finance Ministers and Central Bank Governors Meeting (AFMGM). The 11th AFMGM in Luang Prabang, Laos from April 2 to 5 is an important forum for high-level dialogue on cooperation between central banks and finance ministries in the region, in order to strengthen solidarity between ASEAN countries on the path to financial integration. The Bank of Lao PDR (BOL) and Lao PDR Ministry of Finance are the organizers of this meeting.

Representatives from 10 ASEAN member countries were present, namely Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The Indonesian delegation was led by the Deputy Governor of Bank Indonesia, Filianingsih Hendarta. Timor Leste was also present as an observer.

According to the Head of the Communications Department of Bank Indonesia (BI), Erwin Haryono, Sunday (7/4/2024), the three agendas initiated by Indonesia in ASEAN in 2023 are continuing, namely:

1. Expansion of regional payment connectivity cooperation or Regional Payment Connectivity (RPC). The RPC initiated by Bank Indonesia to facilitate smooth and safe cross-border payments continues to develop under the 2024 ASEAN Laos Chairmanship. This is indicated by the continued increase in countries interested in joining regional payment connectivity cooperation. On April 3, 2024, the MoU signing of the RPC was carried out which marked the joining of Laos as the 8th country to become a member of the RPC cooperation. Currently, the countries that have joined the RPC collaboration are Indonesia, Singapore, the Philippines, Thailand, Malaysia, Vietnam, Brunei and Laos.

2. Use of local currency in cross-border transactions in ASEAN or ASEAN Local Currency Transaction (LCT). In the series of 11th AFMGM meetings, the ASEAN LCT framework, the formulation of which was initiated by Bank Indonesia, succeeded in getting full support from ASEAN countries. This is expected to encourage increased use of local currency in cross-border payment transactions so that it can be beneficial for business actors to reduce trade transaction costs, encourage financial market deepening in local currency, and reduce exposure to exchange rate risk.

3. Indonesia’s efforts to improve the mandate of the ASEAN Working Committee. This initiative aims to make the ASEAN working committee more relevant to developing economic conditions, encourage innovation, increase adaptability, strengthen regional cooperation, and achieve integration and financial stability.

At the 11th AFMGM, Ministers and the Governor of the Central Bank approved the High Level Guidelines and Terms of Reference for Adjusting the Mandate of the ASEAN Working Committee. Currently two working committees have completed adjustments to their mandate, namely the working committee that handles the development of the payment system (Working Committee-Payment and Settlement System/WC-PSS) and the development of capital account liberalization (Working Committee-Capital Account Liberalization/WC-CAL). Furthermore, other working committees related to strengthening financial inclusion, financial market development, trade liberalization and banking integration have started and will continue the process of refining their mandates.

April 7, 2024, detikFinance