NAVIGATING the current geopolitical currency tensions in Asean prompts a critical question: Can the region realistically embark on a path of dedollarisation?
The complexities of the global economic stage, coupled with the ongoing geopolitical tussles, present substantial hurdles for any ambitious move away from the dollar.
The Asean nations, facing a delicate balancing act, must weigh the benefits of potential independence from the dollar against the risks of heightened currency tensions and economic uncertainties.
There are intricate challenges and potential disruptions that may accompany efforts to dedollarize.
The geopolitical undercurrents, especially in the context of the current global scenario, add an additional layer of complexity to the decision-making process.
In essence, the feasibility of dedollarisation in Asean hinges on a nuanced understanding of the region's economic interdependencies, geopolitical realities, and the potential impacts on trade dynamics.
As nations consider charting a course independent of the dollar, they must navigate cautiously, recognizing that even a small storm can produce waves with far-reaching consequences in the intricate seas of global finance.
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.
Practical challenges such as the possible oversupply of local currencies could result from shifting away from the dollar,
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.
Recently, China and Russia 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.
It's clear that a multi-currency international trading environment could emerge in coming years, But we should be cautious against forming policy in anticipation of new reserve currencies to replace the dollar, given tthat now is not the time for potentially disastrous currency experiments.
In the case of Malaysia, looking at real GDP on annual basis for 2019 (pre pandemic) and 2022, we have recovered. Asean 5 too have recovered.
However we are on downside terrain, looking at both economic and non-economic forces. The rest of Asean may have 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.
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?
In the final analysis, amid the current geopolitical currency tensions in Asean, the prospect of dedollarisation raises a fundamental question: is it a pragmatic move or merely a tempest in a teacup?
The intricate challenges and potential disruptions associated with dedollarisation are underscored by the complexities of the global economic stage and ongoing geopolitical struggles. As the Asean nations grapple with a delicate balancing act, the benefits of potential independence from the dollar must be carefully weighed against the risks of heightened currency tensions and economic uncertainties.
The push for dedollarisation in the international arena, notably driven by anti-Western sentiments, further complicates the efficacy of global trade.
Asean nations should be cautious about sacrificing ease of doing business for limited political gains. While major powers like China and Russia aim to reduce their reliance on the dollar, challenges arise, such as China's slow uptake of its digital currency domestically.
Amid these dynamics, we should be cautious against hasty policy decisions given the importance of stability, known values, and gradually ramping up trade in a strained business and supply chain ecosystem.
The question remains: in the pursuit of dedollarisation, will Asean find true independence and empowerment, or risk falling under the disproportionate clout of other global players?
* The writer is a senior consultant at Global Asia Consulting and has a background as a senior researcher at the Malaysian Institute of Economic Research. The viewpoints articulated are solely his.