By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP), with Bank Indonesia, Bank Negara Malaysia, and Bank of Thailand has signed Letters of Intent (LOI) as concrete step to formalizing a regional cooperation to later establish a local currency settlement.
In a joint press statement from Chiang Rai, Thailand, the four central banks announced the signing of bilateral LOIs on local currency framework.
These are: LOI between BSP Governor Benjamin E. Diokno, and Perry Warjiyo, Governor of Bank Indonesia; LOI between BSP and Nor Shamsiah Yunus, Governor of Bank Negara Malaysia; and LOI between BSP and Veerathai Santiprabhob, Governor of the Bank of Thailand.
According to the statement, the three LOIs “represent the concrete efforts of the four central banks in promoting their mutual interests by the potential establishment of local currency settlement frameworks among them.”
Bank Indonesia and Bank of Thailand have also agreed to expanding the scope of their existing local currency settlement framework.
The statement also said that the “greater use of local currencies in settlement of trade and other areas is aimed at reducing the 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 progress towards greater financial integration in the region is a welcome development as we witness the expansion of similar arrangements that were launched in 2017 namely, the Memoranda of Understandings concluded between Bank Indonesia and Bank Negara Malaysia, and between Bank Indonesia and Bank of Thailand,” the statement said.
“ASEAN currencies tend to move (in line) together, and so we are not subject to foreign exchange rate volatility of major currencies,” BOT Governor Veerathai Santiprabhob told Reuters late Monday.
The central banks of Thailand, Indonesia and Malaysia had launched a similar framework in 2017, and will involve the Philippines this year.
The use of local currencies among ASEAN nations will help save foreign exchange transaction costs for businesses amid volatility faced by currencies in advanced economies.
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.