At the 10th Meeting of ASEAN Finance Ministers and Central Bank Governors (AFMGM) in Jakarta from August 22 to 25, Southeast Asian finance ministries and central bank governors agreed to form a task force to promote local currency transactions (LCT) and adopt high-level principles in developing the ASEAN LCT Framework.
On the final day of the meeting, the central bank governors of Indonesia, Malaysia, and Thailand inked a memorandum of understanding (MoU) to strengthen LCT cooperation, with the objective of further promoting the use of local currencies in cross-border transactions by involving market players on a broader scope.
The MoU essentially constitutes a renewed and expanded version of the local currency settlement (LCS), on which an agreement was reached by Bank Indonesia (BI), Bank Negara Malaysia, and Bank of Thailand on December 23, 2016.
Under LCS, Indonesia, Malaysia, and Thailand will cooperate to use their currencies in bilateral trade activities as well as in direct investment.
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Governor of BI, Perry Warjiyo, however, said that it is necessary to expand the economic activities covered by the agreement. The change of the word "settlement" in LCS to "transaction" in LCT signifies that the agreement now also covers other economic and financial activities, in addition to trade and direct investment, he explained.
Furthermore, the expanded agreement aims to enable access to cross-border payments for completing transactions in local currencies more efficiently, which, in turn, could help the countries break free from their reliance on the United States (US) dollar in cross-border transactions.
Translator: Imamatul S, Tegar Nurfitra
Editor: Anton Santoso
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