The dollar remains dominant but poses risks for ASEAN+3 economies. Strengthening financial resilience through regional cooperation, local currency use, and digital infrastructure is essential to mitigate vulnerabilities.
The Dominance of the US Dollar
Despite geopolitical tensions, the US dollar remains the world’s leading reserve currency. While some rivals may wish to challenge its status, the real issue for Asian economies lies in managing vulnerabilities due to their heavy reliance on the dollar. Although the dollar’s global reach remains unrivaled, ASEAN+3 countries face exposure to US monetary shifts and financial shocks, necessitating regional financial cooperation to bolster resilience.
Regional Cooperation and Innovation
The reliance on the dollar has historically underpinned Asia’s trade, but with risks. US monetary policy changes can cause capital outflows and currency depreciation, echoing the 1997-98 financial crisis’s effects. Policymakers are aware of these threats and amass reserves as protection. Advances in digital technology are enabling more efficient cross-border transactions, with ASEAN piloting systems to reduce transaction costs, which should be scaled and integrated for better regional financial safety.
Strengthening Financial Frameworks
To enhance resilience, Asian economies should prioritize three core policies: expanding local currency settlements, internationalizing Asian currencies, and standardizing financial platforms. Cooperation through initiatives like the Chiang Mai Initiative could strengthen regional safety nets. By elevating regional currencies and harmonizing payment systems, ASEAN+3 can create a robust monetary ecosystem that complements the dollar, ensuring stability amid global uncertainties.
Source: How Asia Can Reduce Its Dollar Dependence – ASEAN+3 Macroeconomic Research Office
