Leaders of the Association of Southeast Asian Nations (ASEAN) recently declared to advance regional payment connectivity and promote local currency transactions.
Recognizing the potential benefits of using local currencies, they emphasized the importance of strengthening financial resilience, deepening regional financial integration, and bolstering regional value chains.
To achieve these goals, ASEAN leaders pledged to leverage emerging opportunities brought by innovation to facilitate seamless and secure cross-border payments, taking into account the unique circumstances of each country.
Role of technology and digital currencies
Technology is pivotal in advancing regional payment connectivity within ASEAN by enabling faster, cheaper, safer, transparent, and inclusive cross-border payment systems and services using local currencies.
Using quick response (QR) codes, mobile applications, and digital platforms enhance the efficiency and convenience of local currency transactions among ASEAN countries.
It also supports developing and integrating local currency markets, improving liquidity, market access, and harmonizing payment infrastructure and standards.
According to a Google, Temasek and Bain & Co. report, ASEAN’s booming digital payment market is expected to hit US$2 trillion by transaction value in 2030.
Digital currencies, including central bank digital currencies (CBDCs), offer opportunities and challenges for regional payment connectivity. They provide an alternative payment means independent of intermediaries, borders, and exchange rates.
However, addressing regulatory, legal, and operational issues is crucial to ensure the safety, stability, and sustainability of digital currencies within ASEAN.
ASEAN must invest in digital technologies and platforms to ensure seamless and secure cross-border payment connectivity while achieving interoperability and standardization among member countries.
This will establish a connected and resilient regional payment ecosystem aligned with ASEAN’s vision of more robust financial integration, improved regional trade and investment flows, and enhanced regional value chains.
Examples of regional payment connectivity in ASEAN
ASEAN countries are making significant strides in regional payment connectivity and the promotion of local currency usage. Indonesia, Singapore, Malaysia, Thailand, and the Philippines have signed a Memorandum of Understanding, prioritizing cross-border payment systems, local currency settlement frameworks, digital payment platforms, and financial inclusion.
Moreover, countries such as Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam have implemented bilateral local currency settlement frameworks based on the ASEAN Guideline.
These frameworks enable the use of local currencies for seamless cross-border transactions. To further enhance connectivity, ASEAN is exploring QR-based instant payment solutions.
Several examples demonstrate the cohesive efforts to enhance regional payment connectivity within ASEAN. For instance, the NETS and DuitNow QR systems facilitate retail payments between Singapore and Malaysia through QR code scanning.
Similarly, the PayNow and DuitNow service enables real-time fund transfers between both countries using recipients’ mobile phone numbers.
The PayNow and UPI service facilitates account-to-account fund transfers between Singapore and India, while PromptPay and DuitNow enable instant transfers between Thailand and Malaysia.
The State Bank of Vietnam and the Bank of Thailand have jointly launched QR payment services for cross-border transactions.
Additionally, Bank Indonesia and the Monetary Authority of Singapore collaborate on a cross-border QR payment linkage to further enhance payment connectivity across ASEAN.
These initiatives leverage QR codes, mobile applications, and digital platforms to improve cross-border transactions’ efficiency, security, and convenience.
ASEAN aims to create a more interconnected and efficient regional payment ecosystem through these technological advancements.
The Task Force’s responsibilities, timelines, and expectations
ASEAN leaders have also agreed to promote using local currencies for cross-border transactions within the region. This move aims to reduce reliance on major international currencies, enhance financial stability, and avoid potential spillovers from global crises.
To advance regional payment connectivity, ASEAN leaders agreed to establish a Task Force responsible for studying the feasibility, benefits, challenges, and modalities of implementing the ASEAN Local Currency Transaction Framework.
The Task Force will develop a draft framework that provides guidance and recommendations for promoting local currency usage in cross-border transactions.
The Task Force, established in May 2023, is expected to submit its report and draft framework by the end of 2024. The framework should be comprehensive and practical, considering the varying levels of development, readiness, and capacity among ASEAN countries.
It should align with other relevant ASEAN initiatives and frameworks, such as the ASEAN Economic Community Blueprint 2025, the ASEAN Comprehensive Recovery Framework, and the ASEAN Payment Connectivity Initiative.
A connected and resilient ASEAN payment ecosystem
ASEAN’s commitment to advancing regional payment connectivity and promoting local currency transactions demonstrates its dedication to strengthening regional economic integration.
The association aims to establish a resilient and interconnected payment ecosystem by embracing innovation and overcoming technological challenges.
Through establishing the Task Force and ongoing efforts, ASEAN is well-positioned to enhance financial integration, promote local currencies, and drive regional economic growth and stability.
By harnessing technology, exploring digital currencies, and aligning with relevant initiatives, ASEAN can achieve faster, more inclusive cross-border payments while considering the varying circumstances among member countries.
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