During the 42nd Association of Southeast Asian Nations (ASEAN) summit in Labuan Bajo, Indonesia, from 10-11 May 2023, the ASEAN leaders committed to promoting the use of local currencies to deepen regional financial integration and strengthen financial stability in the region.
Per the Chairman’s statement, the 42nd ASEAN summit adopted the “Declaration on Advancing Regional Payment Connectivity and Promoting Local Currency Transaction” to foster bilateral and multilateral economic integration and enable more affordable cross-border payments across the region.
The promotion of local currencies for trade and payments and the calls for an alternative international reserve currency less dependent on the US dollar are increasing. The recent wave of interest rate hikes by the Federal Reserve (Fed) to fight inflation has led to other central banks raising interest rates to stem capital outflows and depreciation of their currencies.
The emerging markets of Brazil, Russia, India, China, and South Africa (BRICS) are reported to be increasing the use of their currencies in trade. They are also exploring an international reserve currency less dependent on the US dollar. Similarly, other economies in the Middle East, North Africa, and South America are considering their options.
Does the de-dollarization debate provide an opportunity for cryptocurrencies? Looking at the economies exploring de-dollarization poses several questions and issues that must be assessed.
Do these economies give up their national currencies for one another currency, or do they adopt a new common currency? Could these economies consider adopting private money as a cryptocurrency or a stablecoin or opt for a Central Bank Digital Currency (CBDC)?
One thing for sure is that some of the economies exploring de-dollarisation belong to different regional blocs. Pursuing regional bloc economic objectives could conflict with adopting a different currency outside the bloc. Other challenges lie within the agreement, the management, and the distribution of the adopted currency.
Another issue is crypto regulation. The regional blocs are at different levels of developing crypto regulatory frameworks. Some of the economies only have country-specific positions regarding crypto legislation. Adopting a cryptocurrency, stablecoin, or CBDC whilst having different or no crypto legislation would pose challenges for these economies in pursuing a de-dollarisation strategy.
It appears that there are no outright or easy solutions to de-dollarisation. The formulation of global cryptocurrency frameworks is one of the critical issues that must be addressed if cryptocurrencies offer any alternatives to de-dollarisation.
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