The growing use of local currencies in Asian trade signals a gradual shift in the region’s financial landscape. While the US dollar remains dominant, ASEAN economies are increasingly exploring alternative transaction arrangements to strengthen financial resilience and reduce reliance on a single intermediary currency.
In September 2026, the International Monetary Fund (IMF) published an article titled Asia’s Pragmatic Currency Pivot by Dong He, Chief Economist of the ASEAN+3 Macroeconomic Research Office (AMRO).
The article highlighted how ASEAN+3 economies are gradually diversifying their currency use in international trade and finance.
Although the US dollar still accounts for approximately 80% of trade invoicing and 85% of foreign exchange transaction settlements in the ASEAN+3 region, the use of regional currencies is increasing.
This trend reflects a broader effort to develop more diversified payment arrangements, rather than abandon the dollar altogether.
Highlights
ASEAN’s Push Towards Local Currency Transactions
ASEAN has already taken steps to support this transition.
At the 42nd ASEAN Summit in Labuan Bajo, regional leaders adopted the ASEAN Leaders’ Declaration on Advancing Regional Payment Connectivity and Promoting Local Currency Transactions.
The declaration encourages the use of local currencies in cross-border transactions to strengthen financial resilience, deepen regional financial integration and increase intra-ASEAN trade and investment.
As a follow-up, ASEAN established the Local Currency Transaction Task Force (LCT-TF) and developed the ASEAN LCT Framework in 2024.
Indonesia’s experience illustrates the growing adoption of local currency transactions (LCT).
According to Bank Indonesia, the average monthly value of LCT transactions increased from approximately US$211.2 million in 2021 to US$341.9 million in 2022 and US$523.8 million in 2023.
The total transaction value subsequently reached approximately US$16.28 billion in 2024, before rising to US$22.2 billion during January – November 2025 alone.
During the latter period, Indonesia–China transactions accounted for US$10.5 billion, while Indonesia–Japan transactions reached US$7.3 billion.
These figures are expressed in US dollar equivalents for measurement purposes. The underlying transactions, however, are conducted using the local currencies of the respective trading partners.
The increase in LCT activity should therefore not be interpreted as abandoning the US dollar. Rather, it demonstrates the growing availability of transaction channels that do not necessarily require the dollar as an intermediary currency.
What Is Driving the Growth of Local Currency Transactions?
Beyond the ASEAN LCT Framework, three major factors are accelerating the adoption of local currency transactions across the region.
1. Digital payment infrastructure is improving cross-border efficiency
Advances in digital payment infrastructure are making international transactions faster and more cost-effective.
One example is QRIS Cross-Border, which Indonesia has developed with several trading partners to facilitate cross-border payments.
Another is Project Nexus, an initiative led by the Bank for International Settlements (BIS) to connect domestic instant payment systems across participating countries.
In February 2026, Bank Indonesia officially joined Project Nexus alongside Malaysia, the Philippines, Singapore, Thailand and India.
Such connectivity has the potential to improve cross-border payment efficiency while supporting the development of local currency-based transaction ecosystems.
2. Geopolitical uncertainty is increasing the need for financial resilience
Growing geo-economic and geopolitical uncertainty is another important driver.
The US–China trade conflict, President Donald Trump’s tariff policies in 2025, the Russia–Ukraine war and tensions in the Middle East have increased concerns about economic stability and financial market volatility.
Trump’s tariff policies, for example, contributed to greater policy uncertainty and market fluctuations. The US Federal Reserve also recorded significant changes in foreign exchange market conditions following announcements of these trade measures.
Against this backdrop, ASEAN economies have greater reason to strengthen their payment systems and reduce exposure to external disruptions.
LCT arrangements are increasingly viewed as one way to manage currency-related volatility and strengthen regional payment system resilience.
3. Businesses are seeking better ways to manage currency risks
Geopolitical and economic uncertainty is also encouraging financial market participants and businesses to reassess their exposure to foreign exchange risks.
For companies engaged in regional trade and investment, local-currency transactions offer an alternative to relying on the US dollar as an intermediary currency.
Bank Indonesia has noted that LCT arrangements can help corporations reduce currency conversion costs and manage foreign exchange risk exposure.
These benefits are particularly relevant as regional supply chains and investment relationships become more interconnected.
From Payment Mechanism to Geo-economic Instrument
The expansion of LCT across ASEAN raises a fundamental question:
Will local currency transactions remain primarily a mechanism for facilitating cross-border payments, or could they evolve into an important part of Asia’s geo-economic architecture?
This question matters because LCT is not developing in isolation.
Its growth is taking place alongside broader changes in regional trade, investment, economic cooperation and financial integration.
The Regional Comprehensive Economic Partnership (RCEP), for example, strengthens trade integration between ASEAN and its partners, including China, Japan, South Korea, Australia and New Zealand.
Meanwhile, ASEAN+3 reinforces economic and financial cooperation between ASEAN and the three major East Asian economies of China, Japan and South Korea.
These arrangements support increasingly interconnected regional trade and investment relationships.
As cross-border economic activity expands, local currency arrangements and payment connectivity can provide financial infrastructure better suited to the region’s evolving needs.
This is where LCT begins to acquire a broader geo-economic dimension.
Through initiatives such as the ASEAN LCT Framework, the region is developing mechanisms that could influence how trade, investment, financing, currencies and payment systems interact.
The significance of these developments therefore extends beyond transaction efficiency. They could also strengthen ASEAN’s ability to shape the financial infrastructure supporting regional economic activity.
How LCT Could Shape Asia’s Future Economic Architecture
The increasing use of local currencies represents a form of currency diversification rather than a complete departure from the US dollar.
Over time, however, this diversification could become an important geo-economic instrument for the region.
Greater adoption of LCT may reinforce connections between trade, investment, production, markets and payment networks across ASEAN and the wider Asian economy.
It could also contribute to a more resilient regional financial system by expanding the range of currencies and payment channels available to businesses and financial institutions.
More importantly, these developments raise questions about influence over the infrastructure underpinning regional commerce.
If local currency arrangements continue to expand, future geo-economic competition in Asia may not be determined solely by access to resources, production capacity or the ability to offer goods at the lowest cost.
It may increasingly depend on who can influence the currencies, payment standards, financing arrangements and economic infrastructure used throughout Asia’s regional trade networks.
In that sense, the growth of local currency transactions is not merely a technical change in how businesses settle payments.
It could become part of a broader transformation in how Asia organises its economic relationships, strengthens regional resilience and shapes its position in the global financial system.
The future of Asia’s economic architecture may depend not only on who produces and trades the most, but also on who helps determine how those transactions are financed and settled.
About the Author
Dr Eko Setiobudi, SE, ME is an economist, lecturer at STIES Mitra Karya Bekasi, business practitioner and policy commentator.
His writing focuses on Indonesia’s economic policy, investment, industrial development, fiscal policy, and global competitiveness. He has contributed commentary to Indonesian national and regional media.
Highlights
Read the Chinese article here.
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