Residents in Indonesia, Singapore, Thailand, and Malaysia can now make payments for goods and services in each other’s countries via a new cross-border payments system. According to CNBC, the recent launch comes months after a memorandum of understanding was signed by members from the ASEAN (Association of Southeast Asian Nations—which includes five Southeast Asian central banks: Malaysia, Thailand, Indonesia, Singapore, and the Philippines.
The goal is to facilitate and support cross-border trade settlements, remittance, investment, and other economic processes, fostering a more comprehensive financial ecosystem with the Southeast Asian region.
By establishing regional connectivity, ASEAN is working to reduce reliance on outside currencies—such as the U.S. dollar—to conduct cross-border transactions, especially between businesses. The U.S. dollar’s strength in the last few years has debilitated ASEAN currencies, which negatively impacts these economies, as most of these member countries are food and net energy importers.
“The system will forgo the U.S. dollar or the Chinese renminbi as intermediary,” Nico Han, a Southeast Asia analyst at Diplomat Risk Intelligence, the consulting and analysis division of current affairs magazine The Diplomat told CNBC.
At the Forefront of Cross-Border Payments
The move to streamline cross-border payments between regions in Southeast Asian has been in the works for a while. In April, we covered how the Monetary Authority of Singapore and Bank Negara of Malaysia partnered to develop a new cross-border QR code payment linkage. This signaled a significant step forward to facilitating smoother payments between the countries.
And this recent push by ASEAN is another clear step forward to a more financially inclusive environment.
“While a regional play, ASEAN is arguably leading the way for modern-day cross border payments,” said Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, who covered ASEAN in his upcoming impact note, Commercial Strategies and the Need for Speed.
“Singapore, Indonesia, Malaysia and Thailand are tying together a very sophisticated, high velocity platform allowing individuals and businesses in those countries to pay and be paid by the same in any of those four countries,” he said. “Interestingly, the card schemes have fired one over the bow suggesting that their existing payments rail is already there and exceeds the capabilities of the ASEAN solution.”