ASEAN Chairmanship, A Momentum for Indonesia to Increase Use of Local Currency
Jakarta, 4 May 2023 – Bhima Yudhistira, director of the Center for Economics and Law Studies (Celios), believes that Indonesia can use the momentum of its 2023 ASEAN Chairmanship to expand cooperation in the use of local currency or Local Currency Transactions (LCT).
"I believe LCT is a long-term effort, and Indonesia can use its 2023 ASEAN Chairmanship to promote LCT use in many countries," Bhima said in Jakarta on Thursday, 4 May.
According to Bima, if effectively implemented, LCT could have a long-term positive effect on currency stability. This is because it helps reduce the country's reliance on the United States currency (US$). This means that countries participating in LCT cooperation can avoid risks associated with US dollar fluctuations.
Bhima also believes that the LCT initiative is the best strategy for enhancing financial cooperation in the region at the present time. "I think that was the most rational course of action prior to initiating a common currency in ASEAN, for instance. Therefore, it is preferable to utilize the local currency first," said Bhima.
In addition, he suggested that the government offer incentives to exporters and importers, the main actors in regional trade transactions. The reason for this is that he observed that the absorption of local currency among exporters and importers remains relatively low.
In trade transactions between Thailand and Indonesia, for instance, the absorption rate of the local currency use is only around 4%. This indicates that a greater proportion of logistics commerce continues to rely on non-local currencies, such as dollars and euros, for payment. As a matter of fact, the export-import potential between Indonesia and Thailand is relatively large.
"The banking sector needs to be ready to absorb more currencies, such as the ringgit and the won. Thus, exporters and importers can conduct transactions in the local currency, said Bhima.
Piter Abdullah, an economist, and the director of the Center for the Reform of Economics (CORE), concurred with Bhima's assessment that the initiative to use local currency could garner Indonesia favorable appreciation from ASEAN countries.
"I believe that Indonesia's initiative to invite many countries to conduct LCT has received appreciation from ASEAN countries," Piter said when interviewed separately.
According to him, LCT is an excellent measure in efforts to reduce dollar dependence. He is also optimistic about the expansion of LCT applications in the ASEAN region.
Piter continued, if an increasing number of countries agree to implement LCT, the benefits of LCT will be even greater, particularly in terms of trade transactions and dollar dependence.
Nevertheless, he acknowledged that LCT implementation still requires additional support. This is because one of the important aspects of trade transactions is supply and demand as well as global supply chains.
Piter believes the implementation of LCT will be more effective if it is supported by a global supply chain strategy.
"The use of LCT can only be maximized if many countries are involved and LCT is integrated into global supply chains. In the meantime, since many countries require imports, which are still primarily from Europe and the United States and require euros and dollars, the use of LCT will remain limited", he explained.
Piter remains optimistic, however, that the positive effects of the LCT will be widespread and felt by all countries involved in the cooperation.
The LCT is one of the agreements signed by ASEAN+3 members to strengthen regional financial cooperation. ASEAN+3 includes ten Southeast Asian nations in addition to China, Japan, and Korea.
LCT seeks to lessen reliance on the U.S. dollar in order to enhance the stability of each member state.
Indonesia has currently established LCT cooperation with five countries: Malaysia, Thailand, Japan, China, and South Korea.
Indonesia also intends to maximize the momentum of the 2023 ASEAN Chairmanship in order to continue encouraging ASEAN countries to integrate their economic sectors. (Imamatul Antara/TR/Elvira/SC)
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