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ASEAN+3: Local Currencies and the Dollar Backstop

September 23, 2026

The proposed shift to settlement in local currencies in ASEAN+3 is actually a geoeconomic experiment. Yes, this experiment deserves attention. Yes, diversifying the currency composition of assets can reduce the risk of instability and crises. And yes, national interests should be a priority for governments and the authorities responsible for macroeconomic and financial policy. But changing the payment currency does not, by itself, diversify assets or deliver the cost efficiencies and economic benefits that diversification can offer. National interests do not exist in isolation: they are closely intertwined with those of other countries. International finance remains an enduring feature of global economic interconnectedness.

The predominance of the US dollar in international payments cannot be explained by politics alone. The dollar earned its standing through the depth and liquidity of U.S. financial markets, confidence in U.S. financial institutions and regulators, and the convenience U.S. financial environment offers market participants. Its international acceptance reflects both the credibility of the U.S. financial system and the economic interests of the countries, banks, and companies that use it. They gained a common, broadly accepted currency for payments, savings, and financing, aligning their interests with those of the issuer. Since the Bretton Woods agreements more than 80 years ago, the dollar has remained at the heart of international finance. Even the 2007–2009 Global Financial Crisis, which originated in the U.S. financial sector, was accompanied by rising demand for dollars and short-term US Treasury securities. Demand for dollar liquidity surged again during the COVID-19 pandemic in early 2020s. These crises exposed weaknesses in the international monetary system, but also demonstrated how extensively market participants continued to rely on the dollar through prolonged periods of uncertainty and stress.

It is hard to accept the claim that growth in ASEAN+3 economies should automatically lead to a change in settlement currencies. Other economies have grown too. What matters is how the region’s share of nominal global GDP has changed relative to the shares of the United States, the euro area, and other issuers of reserve currencies over the same period. Japan and China are themselves part of that group. An economy’s size and its currency’s international standing are not the same thing: the IMF’s April forecast for 2026 puts China’s share of nominal global GDP at about 16.5%, against 25.6% for the United States. Meanwhile, IMF COFER data for the first quarter of 2026 show that the renminbi accounted for 1.99% of foreign exchange reserves held by central banks worldwide, compared with 57.13% for the dollar. A country’s economic weight therefore does not automatically translate into demand for its currency.

Why, then, is the need for greater use of local currencies in payments being linked specifically to today’s global upheavals? Indonesia, Malaysia, and Thailand signed the relevant agreements back in December 2016. This is therefore an expansion of an existing initiative in that experiment. But greater trade within the region and more modern payment infrastructure do not, in themselves, amount to less dependence on the dollar. The proposal nevertheless retains the dollar as the region’s main reserve currency and a source of crisis liquidity, while expanding the use of local currencies in mutual trade. There is a fundamental difference between self-reliance and depending on someone else’s financial safety net. This is a form of “free riding”: countries in the region reap the benefits of currency autonomy while others provide financial stability in times of stress. The real issue is who supplies the dollars underpinning that safety net, and on what terms. Drawing on one’s own accumulated reserves or financing secured in advance is one thing; counting on outside support is quite another.

References to US import tariffs and the conflict in the Middle East do not, by themselves, explain why regional payments should switch from the dollar to local currencies. A tariff is levied on imported goods, not on the use of dollars: what matters is the product, its country of origin, its customs value and the applicable tariff rate. If an invoice is issued in renminbi, for example, its value is converted into dollars for US customs purposes. Replacing the US dollar with local currencies cannot reopen a blocked trade route or eliminate an energy supply shortage. Tariffs and wars can, of course, affect prices, cross-border capital flows, exchange rates and expectations about economic policy. But objections to U.S. trade policy are not the same as weaknesses of the dollar as a means of payment. The crucial distinction is between the source of a shock and the means of protection against it: changing the payment currency may alter currency risk, but it does not remove the trade barrier or the physical disruption to supplies.

Another question remains: if the purpose of switching to local currencies is to reduce the adverse effects of Federal Reserve monetary policy shocks on the region’s financial markets, how much will those effects diminish while countries in the region continue to hold dollars as liquid reserve assets? Which channels of dependence will disappear, which will weaken, and which will remain? The dollar can be replaced with local currencies, but that does not guarantee the success of this regional economic experiment. Fewer payments in dollars and more in local currencies do not necessarily mean less dependence on the dollar. Moreover, the risks of such a shift are virtually impossible to quantify, not least because ASEAN+3 economies continue to grow and their international economic ties are further diversifying and deepening.

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