An official meeting of all ASEAN Finance Ministers and Central Bank Governors kicked off on Tuesday (March 28) in Indonesia. Top of the agenda are discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies.
The meeting discussed efforts to reduce dependence on major currencies through the Local Currency Transaction (LCT) scheme. This is an extension of the previous Local Currency Settlement (LCS) scheme that has already begun to be implemented between ASEAN members.
This means that an ASEAN cross-border digital payment system would be expanded further and allow ASEAN states to use local currencies for trade. An agreement on such cooperation was reached between Indonesia, Malaysia, Singapore, the Philippines, and Thailand in November 2022. This follows from Indonesia’s banking regulator, stating on March 27 that the Bank of Indonesia is preparing to introduce its own domestic payment system.
Indonesian President Joko Widodo has urged regional administrations to start using credit cards issued by local banks and gradually stop using foreign payment systems. He argued that Indonesia needed to shield itself from geopolitical disruptions, citing the sanctions targeting Russia’s financial sector from the US, EU, and their allies over the conflict in Ukraine.
Moving away from Western payment systems is necessary to protect transactions from “possible geopolitical repercussions,” Widodo said.
Of the ASEAN nations, just Singapore has enforced sanctions on Russia, while all other ASEAN nations continue to trade with the country. There has been alarm at being caught up in US-led secondary sanctions, as are short to impact Central and South Asia countries involved in cotton manufacturing, a major industry in the region employing millions of people.
Foreign investors in Asia may wish to consider the amount of US dollars, Euros and Yen held in their accounts in light of a pending ASEAN currency trade decision. Professional discussions should be taken regarding any movement of company funds to alternative currencies.
There is a reason other countries are trying to do trade settlement in their local currencies. The US is accelerating de-dollarization by issuing 10,000 unilateral sanctions on foreign entities over the last two decades! And under Biden it is accelerating.
中俄 本币结算 Sino-Russian trade is settled in local currency.
东盟去美元化 Association of Southeast Asian Nations decides to de-dollarize
巴西 与中国本币结算 Trade between Brazil and China is settled in local currency
非洲泛非支付结算系统 Pan-African Payment and Settlement System, cross-border payments in African currencies, simplifying cross-border trade.
沙特 人民币结算 Saudi Arabia and China are settled in RMB.
印尼总统佐科 减少西方支付体系 Indonesian President Joko Widodo wants to reduce the use of Western payment systems
Backfire: The Global Ripple Effects of U.S. Sanctions
February 28, 2023 1:00 PM—2:00 PM EST
Sanctions have become the go-to foreign policy tool for the United States. Coercive economic measures such as trade tariffs, financial penalties, and export controls affect large numbers of companies and states across the globe. But while U.S. policymakers see sanctions as a low-cost tactic, these measures also have potent side effects that, in some cases, can even harm American interests.
In her new book Backfire, Agathe Demarais explores the surprising ways sanctions affect multinational companies, governments, and ultimately millions of people around the world. Drawing on interviews with experts, policymakers, and people in sanctioned countries, she examines the unintended consequences of the use of sanctions as a diplomatic weapon.
Backfire: How Sanctions Reshape the World Against U.S. Interests
Sanctions have become the go-to foreign policy tool for the United States. Coercive economic measures such as trade tariffs, financial penalties, and export controls affect large numbers of companies and states across the globe. Some of these penalties target nonstate actors, such as Colombian drug cartels and Islamist terror groups; others apply to entire countries, including North Korea, Iran, and Russia. U.S. policy makers see sanctions as a low-cost tactic, but in reality these measures often fail to achieve their intended goals―and their potent side effects can even harm American interests.
Backfire explores the surprising ways sanctions affect multinational companies, governments, and ultimately millions of people around the world. Drawing on interviews with experts, policy makers, and people in sanctioned countries, Agathe Demarais examines the unintended consequences of the use of sanctions as a diplomatic weapon. The proliferation of sanctions spurs efforts to evade them, as states and firms seek ways to circumvent U.S. penalties. This is only part of the story. Sanctions also reshape relations between countries, pushing governments that are at odds with the U.S. closer to each other―or, increasingly, to Russia and China.
Full of counterintuitive insights spanning a wide range of topics, from Russia’s invasion of Ukraine to Iran’s COVID response and China’s cryptocurrency ambitions, Backfire reveals how sanctions are transforming geopolitics and the global economy―as well as diminishing U.S. influence. This insider’s account is an eye-opening, accessible, and timely book that sheds light on the future of sanctions in an increasingly multipolar world.
The IMF's top official has warned of a decrease in the US currency's dominance in global markets after imposing sanctions on Russia.
Gita Gopinath, first deputy managing director of the International Monetary Fund (IMF), has warned of a gradual decrease of the dominance of the US dollar in the world financial systems after the unprecedented financial sanctions imposed on Russia after its incursion in Ukraine.
The sanctions, from restrictions on Russian banks to measures targeting its economy, imposed by Western nations, could cause a more fragmented international monetary system.
“The dollar would remain the major global currency even in that landscape, but fragmentation at a smaller level is certainly quite possible,” Gopinath told the Financial Times.
“We are already seeing that, with some countries renegotiating the currency in which they get paid for trade,” she added.
Ahead of sweeping Western sanctions, Russian President Vladimir Putin said on Thursday that he had signed a decree saying foreign buyers must pay in roubles for Russian gas from April 1.
The contracts would be halted if these payments were not made.
"In order to purchase Russian natural gas, they must open rouble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered, starting from tomorrow," Putin said.
"If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either — that is, existing contracts will be stopped."
The decision is the last step of Russia's long campaign to reduce its dependence on the dollar.
Although the US currency has an outsized role in global markets, its dominance has been gradually decreasing in the last two decades.
According to a recent IMF report on dollar dominance in global markets, “the share of reserves held in US dollars by central banks has dropped by 12 percentage points since the turn of the century, from 71 percent in 1999 to 59 percent in 2021.”
The decline of US dollar dominance is not the result of reserve accumulation by a small number of large reserve holders with a preference for non-dollar currencies.
Rather, the IMF sees the active portfolio diversification by central bank reserve managers as the main reason for this decline.
The share of nontraditional reserve currencies, defined as currencies other than the US dollar, euro, Japanese yen and British pound sterling, rose from negligible levels at the turn of the century to roughly $1.2 trillion and 10 percent of total identified reserves in 2021.