Bank Indonesia (BI) has proposed the use of local currencies for internal trade transactions within ASEAN countries to reduce dependency on the US dollar.

Indonesia is currently cooperating with three other ASEAN countries, that being Malaysia, Thailand and the Philippines, on the Local Currency Settlement (LCS) in the hopes of expanding the usage of local currencies for bilateral trade transactions.

The expansion of local currencies use within ASEAN was outlined in a draft of the ASEAN Guiding Principles on the LCS framework that was prepared by BI, which will be discussed in the Working Committee on Capital Account Liberalisation later this year.

“If we use local currencies, the transactions in the region will have no significant impact if there is capital outflow from ASEAN countries,” said Wahyu Pratomo, BI’s international department director in Jakarta on 9 April.

According to Mr Pratomo, BI has also submitted the draft at the recent ASEAN finance minister and central bank governors meetings in Chiang Rai, Thailand.

If the 10 ASEAN member countries agreed to the draft later this year, there is a very high possibility that it would be approved during a meeting of governors of ASEAN central banks in Vietnam in April 2020, he added. Should the draft be approved, Indonesia could act as the LCS leader in the region.

Currently, the use of local currencies in ASEAN countries only constitute a small portion of bilateral trade transactions. For example, the use of the Thai baht for trade transactions between Indonesia and Thailand was recorded only at US$13 million in the first quarter of 2019. This comprises only 0.01 per cent of the total trade between the two countries; of which the total was US$2.46 billion in January and February 2019.

Meanwhile, the use of the ringgit in bilateral trade between Indonesia and Malaysia was recorded at US$70 million or 0.03 per cent of the total trade between both countries, which was recorded at US$2.12 billion in January and February.