ASEAN central banks direct CBP settlement system
(9 April 2019 – Asia) ASEAN central banks of emerging economies including Thailand, Indonesia, Malaysia and the Philippines have signed a cross border payments (CBP) agreement to promote trade and investment in local currencies to reduce their exposure to volatile global currency markets.
The Association of Southeast Asian Nations (ASEAN) four central banks - BOT (Bank of Thailand), BI (Bank Indonesia), BNM (Bank Negara Malaysia) and BSP (Bangko Sentral ng Pilipinas) signed a letter of intent on a local currency settlement framework that will map out a direct CBP settlement system. Thailand also plans to sign a MOU (memorandum of understanding) on payments with Laos including negotiations on cooperation over cross-border QR code payment between Thailand, Singapore and Cambodia.
Most trade and investment between the four countries is currently settled in US dollars which adds to the cost of foreign exchange. The central banks of Thailand, Indonesia and Malaysia had launched a similar framework in 2017, and will involve the Philippines this year. ASEAN is Thailand’s biggest export market, accounting for about 27 percent of total exports in 2018. Last year, Thailand exported $30.3 billion of goods to Malaysia, Indonesia and the Philippines, and imported goods worth $24.8 billion from these three countries.
“The use of local currencies in settlement of trade and other areas intends to reduce transaction costs and foreign exchange risks particularly amidst the current volatility faced by currencies in advanced economies. Moreover, the wider use of local currencies in the ASEAN Economic Community enhances economic and financial integration, as well as spurs further development of the foreign exchange and financial markets, within the region” the central banks said in a joint statement. ASEAN comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.