Four Southeast Asian central banks sign local-currency MoU

By Amara Osei

Four Southeast Asian central banks signed a memorandum of understanding on Friday to expand local-currency settlement, according to the banks’ joint statement.

The agreement brings together Bank Negara Malaysia (BNM), Bank Indonesia (BI), Bank of Thailand (BOT) and Bangko Sentral ng Pilipinas (BSP). In the statement, the four banks said the MoU establishes a framework under the Local Currency Transaction (LCT) Framework.

What does the MoU cover?

The central banks said the MoU “establishes a framework for cooperation among the four central banks to promote and facilitate the use of local currencies in the settlement of bilateral transactions between the participating jurisdictions.” The stated scope includes:

• Trade transactions
• Investment transactions
• Other eligible transactions

The framework gives the four banks two connected tasks. They will promote local-currency use and facilitate its use in eligible bilateral settlements.

The banks said wider use is intended to “enhance efficiency in cross-border settlements, reduce costs associated with multiple currency conversions, and provide businesses and other market participants with greater flexibility in managing foreign exchange risks.” Those goals connect the framework to company costs and currency-risk management.

For businesses and other market participants, the stated payoff is a lower cost when transactions require currency conversion. The banks also expect local-currency settlement to give participants more choice in managing foreign-exchange exposure.

The agreement also puts the four banks into continuing implementation work. They said they will collaborate on the LCT Framework’s development and implementation as local-currency transactions expand gradually.

What replaces the 2023 agreements?

Friday’s MoU supersedes the previous bilateral MoUs titled “Framework for Cooperation to Promote Bilateral Transactions in Local Currencies.” Those agreements were concluded among BNM, BI and BOT in August 2023.

The new pact places four institutions under one stated framework for LCT cooperation. It replaces the earlier three-bank arrangement with participation from BSP alongside BNM, BI and BOT.

The banks described the next stage as continuing work on development and implementation. They expect local-currency transactions to expand gradually, support economic activities and strengthen regional financial cooperation.

Economic resilience is the other stated destination for that expansion. The four institutions said the initiative is expected to strengthen regional financial cooperation and economic resilience.

Who signed the accord?

The MoU was signed by BNM Governor Abdul Rasheed Ghaffour, BI Governor Destry Damayanti, BOT Governor Vitai Ratanakorn and BSP Governor Eli M. Remolona, Jr.

The four governors signed for the institutions behind the new arrangement. Their agreement connects the expansion of local-currency settlement with the banks’ stated goals for efficiency, lower conversion costs and better management of foreign-exchange risk.

For companies trading or investing across participating jurisdictions, the MoU provides a stated basis for greater use of local-currency settlement. The banks said broader use could reduce costs tied to multiple conversions and give market participants more flexibility.

That outcome depends on continued adoption and coordinated implementation, under the banks’ stated plan. They will develop the framework together and work toward a gradual increase in local-currency transaction activity.

The joint statement leaves the expansion to the participating institutions. BNM, BI, BOT and BSP said they will keep collaborating as they refine the framework and pursue wider use in eligible regional transactions.

The accord gives the four central banks a common structure for extending local-currency settlement beyond their August 2023 bilateral agreements. Their next step is joint implementation aimed at broader use across trade, investment and other eligible transactions.