SINGAPORE/KUALA LUMPUR: The ongoing geopolitical tensions and economic warfare between major powers has seen a strong push by the anti-Western bloc to promote trade in local currencies and de-dollarisation, further complicating the efficacy of international trade.
Citing practical challenges such as the possible oversupply of local currencies that could result from shifting away from the dollar, Samirul Ariff Othman, a former senior research officer with the Malaysian Institute of Economic Research (MIER) members of the Association of South-East Asian Nations (Asean) would be unwise to trade ease of doing business to score limited political points.
“Trade between Malaysia and its partners in Asean is counted in billions of US dollars. Perhaps some trade could be done in local currencies for symbolic purposes but on a strictly practical consideration how much Thai Baht or Indonesian Rupiah do we really want to hold? How much Ringgit would others be willing to accept?
“This is just a consideration in a well integrated area (Asean) and the problems are obvious. What more in the context of international trade. Are we willing to ditch the Dollar’s convertibility, known value and supply for short term political expediency,” he said.
Recently, China and Russia have sought to reduce their use of the Dollar, or ‘de-dollarise’ their economies, in an effort to shield their economies from US sanctions, reduce exposure to the effects of US economic and monetary policy, and assert their brand of global economic leadership, encouraging other countries to follow suit.
However both countries, and most nations, rely heavily on the dollar. China holds significant dollar reserves. The limited use of China’s currency in cross border transactions constrains China’s broader de-dollarisation efforts. Russia’s ruble is not widely used abroad and global energy markets (Russia’s main export) are traditionally denominated in dollars.
China’s de-dollarisation efforts prioritise the development of a digital currency. This initiative is intended to develop a domestic payment system that could be used globally, including heavy promotion of its “digital Yuan” in the Asean region but its efforts have fallen short even domestically.
Reports from early 2023 highlighted the slow take up of the digital currency even in Hong Kong.
The state-owned Bank of China installed machines at the Lo Wu border crossing between Hong Kong and Shenzhen, China. Users could obtain physical digital yuan cards to make payments across the city-state through the machines.
The low uptake is an even bigger blow given Hong Kong’s high credit and debit card use. About half of all payments in the state are through cards, twice as much as through second-placed digital wallets.
Frank Xie, a professor at University of South Carolina Aiken who studies Chinese business and the economy, observed consumers appear to have an “unwillingness to embrace” the currency over concerns about a loss of privacy, adding that “even ordinary citizens” have come to realise the reach of the government’s power.
Observers such as Boris Schlossberg, managing director of FX Strategy for BK Asset Management have noted that rather than de-dollarisation, China’s digital currency push had also seen pushback from its own people with the demand for crypto currencies rising as ordinary citizens seek to retain control over their personal assets
“With many Chinese entrepreneurs and consumers clearly aware of the government’s intention to exert absolute authority over personal assets, the trend of converting at least part of one’s wealth into crypto assets will continue despite crypto’s inherent volatility,” he said.
While making it clear that a multi-currency international trading environment could emerge in coming years, Samirul cautioned against forming policy in anticipation of new reserve currencies to replace the dollar, explaining that now is not the time for potentially disastrous currency experiments.
“Asean has not fully recovered from the pandemic and the same vulnerabilities remain. In some cases they are even more precarious. What will help is ease of doing business, the ability to rely on known values and to gradually ramp up trade. Introducing further variables into our already strained business and supply chain ecosystem is not going to help,” he said.
“I am not merely talking about teething problems which would be bad enough. After all, advocates for de-dollarisation speak of independence and empowerment. Is that going to be the result if we jump onto platforms and currencies controlled by say China, which already wields disproportionate clout over us. What would the difference be then?,” he said. - Agencies
