ASEAN currencies demonstrate resilience through economic fundamentals and integration efforts. Initiatives like local currency frameworks and fintech development reduce reliance on the US dollar, enhancing regional stability and investment opportunities.

ASEAN currencies have shown significant resilience to global economic shocks driven by robust domestic economic fundamentals, effective policy buffers, growth in FDI and investments and global developments, such as geopolitical uncertainties, trade tensions and financial crises.

Key Points

• Resilience of ASEAN currencies
  • Strong domestic fundamentals, prudent monetary policies, and large foreign reserves have helped withstand global shocks.
  • Growth in exports (US$1.9 trillion in 2024) and FDI (US$234 billion in 2023) supports stability.
• Geopolitical pressures and USD reliance
  • Sanctions on Russia and global trade tensions highlight vulnerabilities of USD dependence.
  • ASEAN nations are diversifying reserves and promoting intra-regional trade to reduce reliance on the dollar.

Mounting geopolitical uncertainties and trade tensions, exacerbated by sanctions against Russia, have challenged the US dollar’s dominance driving a need for ASEAN countries to deepen integration, diversify currency reserves, and promote intra-regional trade to build resilience against future crises and reduce reliance on external currencies, the US dollar in particular.

At present, the ASEAN nations are developing an independent and more resilient regional financial system through integration and cooperation initiatives such as Regional Payment Connectivity, integrated QR payments, financial safety nets, Digital Economy Framework and Central Bank Digital currencies that aim to strengthen the payment connectivity among these nations while withstanding external shocks and future crises.

The development of fintech and digital banking in ASEAN has brought in stability to the banking system in the region offering broader currency and economic stability. The evolving fintech and digital banking landscape in the region is offering significant investment opportunities for investors in digital payments and lending, neobanking, embedded finance, investment technology and infrastructure.

ASEAN’s Emergence as a Global Powerhouse Supports Financial Resilience

The ASEAN region, with a total population of 682.7 million and a combined GDP of US$3.8 trillion ranks as the fifth-largest economy in the world. The region has evolved into a rapidly growing hub maintaining strong economic resilience driven by robust household consumption, steady increase in foreign direct investment (FDI), economic diversification and access to developed export markets.

Regional integration initiatives

• Local Currency Settlement frameworks (Indonesia, Malaysia, Thailand) encourage trade in local currencies.
• Regional Payment Connectivity (RPC) and interoperable QR payments lower transaction costs and improve cross-border efficiency.
• Chiang Mai Initiative (US$240 billion swap arrangement) provides financial safety nets.

The manufacturing sector continues to play a crucial role as the key driver of economic growth in the region. Manufactured goods such as electronics, automobiles and parts, textile & garments and agricultural products (such as palm oil, rice and rubber) dominate the exports in the ASEAN region.

In 2024, region’s exports reached US$1.9 trillion (7.7% of global exports) growing from US$1.1 trillion in 2016. Over the past decade, ASEAN’s exports to the US alone have increased roughly from 10% to 17%, highlighting the increased role of ASEAN in international trade.

During the last decade, ASEAN also has demonstrated strong performance in services trade, whereas service exports expanded by 8.0% in 2023 to US$554.2 billion.

During this period, intra-ASEAN trade also experienced significant growth with the removal of tariff on most products across the region (through ATIGA) which has helped build an integrated and stable regional market. In 2023, intra-ASEAN trade exports contributed to 22.1% of total ASEAN exports, growing at an average annual growth rate of 7.3% between 2003-2023.

Intra-ASEAN services trade also has experienced sustained growth over the years accounting for 14% of ASEAN’s total trade in services in 2023 (vs 12.6% in 2022). This strong growth in intra-ASEAN services trade further emphasizes the interdependence among ASEAN nations and strong regional integration.

Having a strong export sector and deep intra-regional integration have helped these nations generate significant foreign exchange earnings that have helped currency resilience through building large foreign exchange reserves.

Exports and foreign investments have been key drivers of economic growth in the region and have helped reduce the need for external borrowings in foreign currency. This has paved the way for the development of strong local currency bond markets which has helped build further resilience by reducing dependence on foreign funding.

Prudent monetary policies (such as interest rate and foreign reserve management) aimed at inflation targeting also has offered currency stability in the region. The inflation across most countries in the region has moderated and remains largely within the target.

Source: Source: Board of Governors of the Federal Reserve System (US)

Central banks in countries such as Indonesia and Vietnam have set higher local interest rates which has helped attract foreign investments due to higher yields, driving local currency appreciation.

The inward foreign direct investment flows into ASEAN have shown steady growth over the years (from US$119 billion in 2015 to US$234 billion in 2023) despite seeing a temporary decline in 2020 due to the COVID-19 outbreak. This growth has been driven by a large consumer market, strong economic fundamentals, diversification of supply chains and favorable government policies.

Geopolitical Uncertainties Create a Need for Building Resilience

The US Dollar has been dominating the global trade for decades, and ASEAN has been no exception. The ASEAN nations rely heavily on the US dollar (USD) as the primary currency for trade with the US and other nations including for intra-regional transactions. However, mounting geopolitical uncertainties and trade tension have challenged the USD’s dominance during the past few years, and the economic sanctions levied against Russia in response to its invasion of Ukraine further exacerbated this situation.

This resulted in a need for the countries in ASEAN to further deepen their integration and cooperation to diversify reserves and promote intra-regional trade. Moreover, this created a desire for ASEAN nations to bolster their resilience to weather future crises by reducing their dependence on external currencies.

ASEAN currencies are now less tied to the USD than before, and during the past decade, the exchange rate/USD (weighted average currency index) has shown less volatility compared to other emerging economies.

De-Dollarization in ASEAN: A Collective Effort 

Local Currency Settlement Frameworks (LCS): The member states in ASEAN are implementing bilateral and multilateral LCS frameworks to promote the use of local currencies for intra-regional trade and investment. The goal is to reduce exposure to external currency volatility while enhancing efficiency for businesses in the region. At present, operational frameworks exist between Indonesia, Malaysia and Thailand, and as a result, transactions in local currencies within ASEAN have seen tremendous growth during the past five years.

Regional Payment Connectivity (RPC): In November 2022, five ASEAN member states (namely Indonesia, Malaysia, The Philippines, Singapore and Thailand) signed a MoU on cooperation on RPC which aims to strengthen bilateral and multilateral payment connectivity among the nations. This has supported faster, cheaper, transparent and more inclusive cross-border payments in the region. The initiative has now been extended to other member states including Vietnam (2023), Brunei (2024), Lao PDR (2024) and Cambodia (2025). The development of the RPC has also attracted countries outside the ASEAN.

Investment opportunities

• Rising demand for fintech, neobanks, embedded finance, and digital infrastructure.
• Strong manufacturing and services sectors continue to attract investors.

Integration of QR Payments: Having an ASEAN interoperable Quick Response (QR) payment is a key focus area of RPC that aims to encourage integration across participating central banks to standardize national payment systems through a common QR code format, ensuring seamless cross-border transactions. QR code systems of several member states including Cambodia (KHQR), Indonesia (QRIS), Lao PDR (Lao QR), Malaysia (DuitNow), The Philippines (QR Ph), Singapore (PayNow), Thailand (PromptPay), and Vietnam (VietQR) have already been connected. These initiatives are expected to lower transaction costs while mitigating foreign exchange risk. In the meantime, Japan is also reportedly exploring the integration of its QR payment system into RPC, with full implementation expected by end-2025.

Regional Financial Safety Nets: A multilateral currency swap arrangement (The Chiang Mai Initiative Multilateralisation (CMIM)) with a funding size of US$240 billion has been in place among the ASEAN+3 member countries (ASEAN, China, Japan, and South Korea) to address balance of payment and short-term liquidity crises (by enabling rapid financing facilities) in the region.

The regulators and central banks in the region have launched several policy frameworks to facilitate seamless transaction in the region.

The ASEAN Policy Framework is a regional initiative that provides the guiding principles for the implementation of interoperable, real-time payment systems across the region. These include common standards, data security (ISO:20022) and linkages between national QR systems.

The Local Currency Transaction Framework is an initiative by the central banks of Indonesia, Malaysia and Thailand to promote the use of local currencies for trade and investment thereby reducing reliance on USD. This framework was extended in 2025 to include portfolio investments to further strengthen financial cooperation in the region.

The ASEAN Digital Economy Framework Agreement (DEFA) is a comprehensive roadmap negotiated by the countries to create the world’s first comprehensive digital trade rules through harmonizing standards, digital trade, cybersecurity and digital payments. Negotiations are expected to conclude, with the agreement signed by 2026.

In addition to the above, the countries in the region are in the process of adopting international standards such as ISO:20022 messaging standard to facilitate data exchange for regulatory compliance and greater transparency.

Central Bank Digital Currencies (CBDCs) to Further Strengthen Regional Integration

ASEAN Countries are actively exploring CBDCs to further enhance financial inclusion and cross-border payments while further strengthening regional efforts to reduce US dollar reliance. While Singapore (a trial is expected in 2026) is at the forefront, Thailand, Indonesia and Malaysia have already launched pilot projects exploring both wholesale and retail applications as a means of modernizing cross-border payments. The other countries in the region including The Philippines, Cambodia and Vietnam have already initiated several measures (such as receiving training, ongoing research, etc.) related to CBDCs to enhance cross-border interoperability.

CBDCs, if made interoperable with systems of other countries, have the potential to reduce transaction costs by cutting down transaction times and facilitating deeper economic ties with other economies in the region. This offers unique advantages to countries in ASEAN by enabling direct settlement in local currencies thereby reducing US dollar dependency and stability against currency volatility.

Fintech and Digital Banking Further Boost Currency Resilience

The development of fintech and digital banking in ASEAN has further enhanced currency resilience by complementing the regional cooperation initiatives. As countries in the region attempts to interlink economies and financial systems, fintech has offered various measures to achieve the above through streamlining cross-border payments.

Digital transformation

• Fintech and digital banking enhance financial inclusion and stability.
• Central Bank Digital Currencies (CBDCs) are being piloted to strengthen cross-border payments and reduce USD dependency.

Digital banks and fintechs in the region offer services such as mobile money, digital wallets and micro-credit to population which were previously unbanked as well as to SMEs in the region promoting financial inclusion. Strong and inclusive economies are inherently more resilient to external pressures which in turn supports currency strength.

In general, fintech applications leverage big data, AI and blockchain that enable financial institutions to accurately assess risk and manage liquidity in real-time. This offers stability to the banking system and resilience to external shocks which in turn provides the foundation for broader currency and economic stability.

Investment Implications for ASEAN

As fintech firms in the region play a crucial role in developing a robust ecosystem for local currency transactions in the region, there has been strong demand for fintech, digital banks and RegTech (regulatory technology) offerings. The acceleration of digital payment platforms and cross-border payment systems such as the RPC initiative have created a fertile ground for fintech investment in ASEAN. Neobanks are rapidly growing in the region targeting its large underbanked population presenting significant opportunities for innovation and growth. At the same time, embedded finance is also transforming ASEAN’s fintech landscape offering significant opportunities in areas including payments, lending, wealth management and insurance infrastructure. In addition to diversified manufacturing and service hubs in ASEAN offering attractive investment opportunities, investors should also look at companies that stand to benefit from this evolving fintech transition (such as infrastructure and technology providers).

Conclusion

The use of local currencies in cross-border transactions in ASEAN is increasing driven by geopolitical uncertainties and trade tensions. Strengthening macroeconomic fundamentals and deepening regional financial integration and payment connectivity have promoted cross-border settlements in ASEAN, accelerating the move away from the USD. The policy makers and central banks in the region have introduced several policy frameworks to develop an independent financial system thus bringing in further resilience to ASEAN currencies.

An evolving fintech and digital banking landscape in the region have further supported this move by improving the efficiency of cross-border transactions. The investors in ASEAN are increasingly hedging their USD exposures with slowdown in the US economy driving further demand for ASEAN currencies. An attractive bond market in the region (including higher yields compared to other developed markets) also offers investors an opportunity for portfolio diversification.

Despite the cooperation among ASEAN countries and the significant progress made towards building an independent financial system in the region, diverse regulatory landscapes among countries, varied stages of digital infrastructure development and the need to harmonize data protection protocols need to be addressed to achieve an independent financial system. While US dollar’s dominance is expected to continue, ongoing collaboration among ASEAN nations have paved the way for gradual development of an independent financial ecosystem.

This article was written by Smartkarma, in collaboration with ASEAN Exchanges. 

Source : Currency Resilience in ASEAN: Moving Towards an Independent Financial System

Other People are Reading