Analysis

10 Ways ASEAN Could Be Instrumental in Competing with the US Dollar Through a Common Currency for Economic Stability

Published

5 months ago

February 25, 2026

This article discovers 10 powerful ways an ASEAN common currency could challenge US dollar dominance, reduce regional vulnerability, and drive ASEAN economic stability — backed by 2026 data, policy frameworks, and forward-looking analysis.

Introduction: The Dollar’s Grip Is Loosening — And ASEAN Is Watching Closely

For nearly eight decades, the US dollar has been the undisputed axis of global commerce. Roughly 88% of all foreign exchange transactions still involve the greenback, according to the Bank for International Settlements. But across Southeast Asia, something quietly tectonic is underway.

In boardrooms from Jakarta to Kuala Lumpur, and in the policy corridors of the ASEAN Secretariat, a once-fringe conversation has turned urgent: what would it take for Southeast Asia to build a monetary architecture less tethered to Washington’s fiscal cycles, Federal Reserve rate decisions, and geopolitical preferences?

The numbers are compelling. AMRO-ASIA.org’s 2026 Regional Economic Outlook projects ASEAN+3 growth at 4.0% in 2026, outpacing advanced economies by a considerable margin. ASEAN’s digital economy is on track to hit $560 billion by 2030 per the World Economic Forum. Local Currency Settlement (LCS) transactions have more than doubled, now accounting for an estimated 15% of intra-regional trade flows, up from under 7% in 2021.

An ASEAN common currency — or at minimum, a deeply integrated ASEAN currency framework — is no longer a utopian thought experiment. It is a strategic imperative gaining institutional momentum. This analysis explores ten actionable, data-grounded pathways through which ASEAN could leverage monetary integration to challenge dollar dominance and build lasting ASEAN economic stability.

1. Building a Regional Payment Connectivity Infrastructure That Bypasses SWIFT

The most immediate lever available to ASEAN is not a single currency, but a shared payments rail that reduces the transactional footprint of the dollar. The Regional Payment Connectivity (RPC) initiative, linking real-time payment systems across Indonesia, Malaysia, the Philippines, Singapore, and Thailand, is already live. By 2025, QR-code cross-border payments between these nations had processed over $4 billion in cumulative transactions without a single dollar intermediating the exchange.

Project Nexus, developed under the BIS Innovation Hub, takes this further by creating a multilateral, instant payment network across ASEAN member central banks. When payment infrastructure no longer defaults to dollar-clearing, the cognitive and institutional bias toward dollar invoicing weakens — and that behavioral shift is where ASEAN de-dollarization truly begins.

The lesson from Europe is instructive: SEPA (Single Euro Payments Area) preceded full monetary union, normalizing euro-denominated transactions before the currency itself matured as a reserve asset. ASEAN’s RPC is playing that exact role today.

2. Scaling Local Currency Settlement Frameworks Between Bilateral Pairs

Before any multilateral ASEAN monetary union is politically feasible, bilateral local currency frameworks are quietly rewiring trade finance. Japan and Indonesia formalized a yen-rupiah settlement corridor in 2023, allowing direct conversion without dollar intermediation. China-Malaysia ringgit-yuan corridors, Thailand-India baht-rupee agreements, and Singapore’s multi-currency MAS frameworks have followed in rapid succession.

According to the Asian Development Bank’s Asian Economic Integration Report 2025, local currency transactions in ASEAN as a share of total bilateral trade have risen by approximately 8 percentage points since 2020. The key insight: each bilateral corridor reduces the marginal cost of a future multilateral settlement system, essentially pre-building the plumbing of regional monetary union one pipe at a time.

Framework	Currency Pair	Trade Volume (2025 est.)	USD Bypassed?
Japan-Indonesia LCS	JPY-IDR	~$18B	Yes
China-Malaysia	CNY-MYR	~$32B	Yes
India-Thailand	INR-THB	~$9B	Yes
Singapore MAS Multi-FX	SGD-basket	~$55B	Partial

3. Leveraging CBDCs and mBridge to Create a De Facto ASEAN Digital Currency Layer

Central Bank Digital Currencies (CBDCs) may be the most underappreciated vehicle for ASEAN currency integration. The mBridge project — a multi-CBDC platform co-developed by the central banks of China, Hong Kong, Thailand, and the UAE under BIS coordination — has already completed pilot transactions worth over $22 million in wholesale cross-border settlements.

More significantly, Thailand’s Bank of Thailand and Singapore’s MAS are both advancing retail CBDC frameworks with interoperability protocols designed for regional use. If ASEAN’s ten central banks converge on a common CBDC interoperability standard — even without a single currency — the practical effect would be a synthetic “ASEAN digital currency layer” enabling seamless cross-border payments in ASEAN at near-zero cost and without dollar conversion.

The IMF’s 2025 Working Paper on CBDC Cross-Border Implications notes that multi-CBDC arrangements can reduce FX transaction costs by up to 50% and settlement times from two days to under ten seconds. For a region conducting $3.8 trillion in annual intra-regional trade, that efficiency dividend is enormous — and denominated in local currency, not dollars.

4. Establishing an ASEAN Monetary Fund as a Credible Backstop

One of the dollar’s most durable advantages is not transactional but psychological: it is the currency of last resort. When crises hit — as they did for Thailand in 1997, Indonesia in 1998, or regionally during COVID-19 — nations scramble for dollar liquidity. An ASEAN common currency or even a deep currency cooperation framework requires an equally credible regional lender of last resort.

The Chiang Mai Initiative Multilateralisation (CMIM), currently sized at $240 billion, represents the seed of such an institution. But its activation threshold remains politically high — historically requiring IMF co-conditionality — and it has never been fully drawn upon. Reforming CMIM into a more autonomous, rapidly deployable ASEAN Monetary Fund, modeled on the European Stability Mechanism (ESM), would provide the credibility backstop that a regional currency requires.

The ADB estimates that deepening CMIM and reducing its IMF linkage could cut member nations’ precautionary reserve holdings by 15-20% — freeing up hundreds of billions in dollar reserves currently sitting idle as insurance policies.

5. Reducing Commodity Invoicing in Dollars Through Petrochemical and Agricultural Benchmarks

ASEAN is one of the world’s most commodity-rich regions — the top exporter of palm oil, a major LNG producer, and a growing force in critical minerals essential for the energy transition. Yet nearly all of these commodities are priced and invoiced in US dollars, a structural dependency that amplifies currency volatility for producing nations whenever the Fed tightens policy.

An ASEAN commodity pricing benchmark — beginning with palm oil, which Malaysia and Indonesia effectively control as a duopoly — denominated in a basket of regional currencies or an ASEAN unit of account, could begin the process of de-linking commodity flows from dollar pricing. This is not unprecedented: the euro has steadily gained ground as an invoicing currency in European energy markets since the early 2000s, reducing eurozone nations’ exposure to dollar energy shocks.

Indonesia’s President Joko Widodo’s 2022 push to price nickel exports in non-dollar terms was politically bold but logistically premature. By 2026, with deeper regional payment rails in place, the infrastructure conditions for ASEAN vs US dollar dominance in commodity pricing are maturing meaningfully.

6. Harmonizing Capital Market Regulations to Attract Intra-ASEAN Investment in Local Currency

ASEAN financial resilience requires not just payment systems but deep, liquid capital markets denominated in regional currencies. Currently, ASEAN’s bond markets are fragmented, illiquid at the regional level, and heavily reliant on dollar-denominated issuance to attract foreign capital. The ASEAN+3 Bond Market Initiative (ABMI) has made progress, but intra-ASEAN bond holdings remain disproportionately low relative to the region’s economic weight.

A harmonized ASEAN capital market framework — common listing standards, mutual recognition of securities, and a unified clearing infrastructure — would enable pension funds, sovereign wealth funds, and insurers to diversify into ASEAN-currency assets at scale. Singapore’s SGX, Bursa Malaysia, and the Stock Exchange of Thailand collectively manage over $1.2 trillion in market capitalization; deeper integration could create a market rivaling the London Stock Exchange in depth.

The WEF’s 2026 ASEAN Competitiveness Report flags regulatory harmonization as the single highest-return, lowest-cost reform available to reduce US dollar dependence in ASEAN — yet one where political will remains the binding constraint.

7. Using the ACU (ASEAN Currency Unit) as a Basket Reference Unit Before Full Union

History suggests that successful currency unions pass through a reference unit phase before full monetary integration. The European Currency Unit (ECU), a weighted basket of EC member currencies, operated from 1979 to 1999 — a twenty-year normalization period during which markets, contracts, and institutions built comfort with a pan-European monetary reference.

An ASEAN Currency Unit (ACU) — a GDP-weighted or trade-weighted basket of member currencies — could serve a similar bridging function today. It would not require surrendering monetary sovereignty (the ECU never did), but it would provide a common reference for intra-ASEAN contracts, bond issuances, and ultimately central bank reserve allocations. Over time, as ACU-denominated markets deepen, the ACU could organically evolve toward a transactional currency.

Academic research published on ResearchGate by Plummer & Chia (2024) modeling optimal ASEAN currency basket weights suggests that a trade-weighted ACU would have reduced exchange rate volatility for member nations by an estimated 22-31% during the 2020-2024 period of dollar strength — a powerful empirical case for its adoption.

8. Anchoring ASEAN Currency Integration to the Digital Economy Boom

ASEAN’s digital economy is the region’s most compelling growth narrative — and arguably its most powerful argument for ASEAN currency integration. A $560 billion digital economy by 2030 will generate billions of micro-transactions, platform payments, and cross-border digital service flows that are inherently inefficient to route through dollar FX conversion.

Grab, Sea Limited, GoTo, and Lazada together process hundreds of millions of transactions annually across multiple ASEAN currencies. The FX conversion friction in these ecosystems represents both a cost and a strategic vulnerability: dollar strengthening directly erodes the purchasing power of consumers and merchants transacting in baht, rupiah, ringgit, and peso.

A unified ASEAN digital payment token — not necessarily a legal tender replacement, but a layer-two settlement mechanism for digital commerce — could eliminate this friction entirely. Singapore’s MAS has been quietly piloting exactly this through its Project Ubin and subsequent initiatives, and the Financial Times has reported growing private sector appetite among ASEAN fintechs for a regional stablecoin framework backed by a basket of central bank reserves.

9. Coordinating Monetary Policy Through an Enhanced ASEAN+3 Macroeconomic Framework

ASEAN economic stability ultimately requires more than infrastructure — it requires policy coordination. One of the most persistent criticisms of any ASEAN monetary union proposal is the region’s structural heterogeneity: Singapore’s per capita GDP exceeds $80,000; Myanmar’s barely clears $1,200. A one-size-fits-all monetary policy would be genuinely destabilizing for the weaker economies.

But coordinated monetary policy — a middle path between full union and complete independence — is both feasible and urgently needed. The AMRO (ASEAN+3 Macroeconomic Research Office) already serves as a regional surveillance body, publishing quarterly assessments of member economies. Empowering AMRO with formal policy coordination mandates — analogous to the ECB’s role before it assumed full monetary authority — could enable synchronized interest rate corridors, coordinated FX intervention frameworks, and a regional inflation target that reduces policy divergence over time.

AMRO’s 2026 projections showing ASEAN+3 growth at 4.0% amid global headwinds demonstrate that the region already moves with a degree of macroeconomic synchronicity that underpins the case for deeper coordination.

10. Deploying ASEAN’s Geopolitical Moment to Build Institutional Legitimacy

Perhaps the most undervalued driver of ASEAN de-dollarization is geopolitical timing. The fracturing of the post-Cold War US-led financial order — accelerated by the weaponization of dollar-clearing systems against Russia in 2022, US-China decoupling pressures, and the Global South’s growing frustration with IMF conditionality — has created a window of institutional legitimacy for regional monetary alternatives that did not exist a decade ago.

ASEAN’s non-aligned tradition, its “ASEAN Way” of consensus-building, and its position as a credible neutral party in US-China competition make it uniquely placed to lead a monetary architecture that is neither a dollar replacement nor a yuan vehicle, but something genuinely multipolar. The WEF’s 2026 analysis on ASEAN strategic autonomy frames this moment as a “once-in-a-generation” opportunity for the region to shape global financial norms rather than merely comply with them.

Indonesia — the world’s fourth most populous nation, G20 member, and 2023 ASEAN Chair — has increasingly articulated a vision of ASEAN currency leadership as part of its broader Global South positioning. With ASEAN’s combined GDP crossing $4.5 trillion in 2025 and the region on track to become the world’s fourth-largest economic bloc by 2030, the geopolitical credibility to back institutional monetary ambition is materially present.

Conclusion: Not If, But When — And How Carefully

The question facing ASEAN’s finance ministers, central bankers, and heads of government is not whether a common currency or deep monetary integration is desirable in principle. Most economists agree it is. The question is sequencing: building the payment rails first, then the settlement frameworks, then the reference currency unit, then the institutional governance — and doing each step well enough that markets, not just politicians, begin to trust the architecture.

The euro’s cautionary tale is relevant here. Its design flaws — a monetary union without fiscal union — nearly tore the eurozone apart in 2010-2012. ASEAN must learn from that near-catastrophe: any ASEAN common currency must be accompanied by adequate fiscal transfer mechanisms, flexible convergence criteria that respect member diversity, and democratic accountability structures that prevent technocratic overreach.

But the trajectory is unmistakable. Cross-border payments in ASEAN are growing, dollar invoicing is declining at the margin, CBDC interoperability is advancing, and the geopolitical wind is at the region’s back. An ASEAN monetary framework competitive with — not necessarily replacing — the US dollar is not a fantasy. It is a project already underway, gathering institutional mass and market momentum with every bilateral LCS agreement, every mBridge pilot transaction, and every digital payment processed in baht instead of dollars.

The dollar will not fall. But its monopoly is ending. And Southeast Asia is positioning itself to shape what comes next.

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Banks

Inside the Fed’s Most Divided Vote in Years: Why Warsh Held the Line on Rates

Published

1 day ago

August 3, 2026

Abdul Rahman

The Federal Reserve’s rate-setting committee held its benchmark borrowing rate steady on July 29, keeping it in a range of 3.5% to 3.75% — but the calm on the surface masked one of the most contested votes of the post-pandemic era. The Federal Open Market Committee split 9 to 3, with three members pushing to raise rates rather than hold, according to NPR’s coverage of the decision.

Chair Kevin Warsh, who took over the Eccles Building earlier this year after a nomination process that rattled bond markets, used his post-meeting press conference to make a point of not making a point. Rather than signal where rates are headed next, Warsh told reporters the Fed would judge market reaction “direct and unfiltered” instead of offering the rolling forecasts investors have come to expect, a stance detailed in CNBC’s meeting recap.

A rate hike was genuinely on the table

What made this meeting unusual wasn’t just the dissent — it was how close markets came to pricing in a hike rather than a cut. Fed funds futures tracked by CME Group put the odds of a rate increase at roughly 35% heading into the decision, up sharply from 26% a week earlier, according to CNBC’s markets analysis. That is a striking reversal from the rate-cutting cycle many investors had expected when Warsh’s nomination was first floated as a “productivity-led growth” pivot away from his predecessor’s caution.

The market reaction told its own story. The S&P 500 slid roughly 0.6% during Warsh’s press conference, the Dow shed more than 840 points intraday, and the 10-year Treasury yield rose to 4.657%, even as the Fed opted for a hold rather than a hike.

Why Warsh is playing it differently

Warsh’s approach reflects both economic and political calculus. Treasury yields have climbed since the Fed’s prior meeting despite the hold, a dynamic Warsh acknowledged directly. And unlike his predecessor, Warsh has been explicit that he intends to set policy independent of the White House’s preferences — even as he awaits a possible additional ally on the Board once a pending internal review concludes, according to CNBC’s analysis of the political backdrop.

Why this matters beyond Washington

A genuinely undecided Fed has knock-on effects well past US borrowers. Higher-for-longer Treasury yields pull global capital toward dollar assets, complicating rate paths in London, Ottawa, and emerging markets alike — a dynamic playing out in parallel with the UK’s own fiscal squeeze (see our companion report on the Autumn Budget) and China’s deflationary drag on global demand. For businesses and investors across the Gulf, Southeast Asia, and South Asia weighing dollar-denominated debt or dollar-pegged currencies, an unpredictable Fed chair is arguably a bigger variable than the rate level itself.

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Analysis

Pakistan Passed Its Third IMF Review

Published

3 days ago

August 1, 2026

Abdul Rahman

The IMF’s Executive Board completed Pakistan’s third review of its 37-month Extended Fund Facility (EFF) and second review of its Resilience and Sustainability Facility (RSF) on May 8, 2026, unlocking roughly $1.1 billion under the EFF and $220 million under the RSF, according to the IMF’s official statement. Total disbursements under both arrangements now stand at roughly $4.8 billion. Acting Chair Nigel Clarke credited Pakistan’s “strong program implementation” for supporting macroeconomic recovery and building resilience to shocks.

The Genuinely Good Numbers

By the IMF’s own account, the underlying data supports the assessment. GDP growth accelerated to an average of 3.8% year-on-year in the first half of FY26, driven by the auto, construction and garment industries, even accounting for flood disruption in July-August, according to the IMF’s staff report. Inflation, while ticking up to 7.3% year-on-year in March as commodity price pass-through hit domestic energy prices, remained within a broadly contained range, with core inflation at 7.6%. The current account was described as broadly balanced, and reserve rebuilding exceeded earlier projections — the State Bank of Pakistan projects reserves continuing to climb to roughly $18 billion by June 2026, according to analysis from the Islamabad Policy Research Institute.

The State Bank confirmed receipt of $1.3 billion from the IMF on May 12, 2026, according to CSS Prep’s policy analysis, which notes reserves had fallen to dangerously low levels in 2022-2023 before this recovery.

The External Risk the IMF Flagged Explicitly

The Fund’s own report is notably candid about downside exposure: under its April 2026 World Economic Outlook adverse scenario, the cumulative hit to Pakistan’s GDP from continued Middle East conflict could rise to around 1.5 percentage points by FY27, with inflation and the current account deficit each worsening by roughly 1.5-2.5 percentage points of GDP, according to the IMF’s staff country report. Given Pakistan’s reliance on imported energy, oil price volatility discussed in the IMF’s global outlook feeds directly into this specific country risk.

The Reform Question That Keeps Recurring

The structural policy conditions attached to this review read as familiar territory: sustaining fiscal consolidation, broadening the tax base, maintaining tight monetary policy to keep inflation within the State Bank’s target range, and advancing energy-sector reform — commitments the IMF’s own end-of-mission statement described as still “ongoing” rather than complete, per the IMF’s March 2026 mission statement.

A sharper framing comes from Pakistani policy analysts themselves: reforms that would genuinely break the IMF-program cycle — broadening the tax base to include agriculture and retail, ending energy subsidies, privatizing loss-making state-owned enterprises — impose concentrated, visible costs on politically organized interest groups, while the benefits of reversing those costs are diffuse and delayed, according to CSS Prep’s analysis. That political-economy imbalance, the analysis argues, consistently favors populist continuation of stabilization support over the structural reform that would end the need for it — a pattern this third review’s genuine macroeconomic progress doesn’t yet break.

Social Cost of the Adjustment

Pakistan’s poverty headcount rate rose to 25.3% in FY24, up sharply from 18.3% in FY22, driven by overlapping shocks from COVID, floods and inflation, according to the IMF’s staff report. The Benazir Income Support Programme (BISP) remains the primary social protection mechanism absorbing the distributional cost of IMF-mandated energy price increases and fiscal tightening — whether its scale is adequate remains, in the IMF’s own words, a live policy question rather than a settled one.

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Analysis

The Fed Is Fractured — And a New Chair Just Made It Louder, Not Quieter

Published

3 days ago

August 1, 2026

Abdul Rahman

The Federal Reserve held its benchmark interest rate steady at 3.5%-3.75% on July 29, 2026, but the more consequential detail was the vote itself: 9-3, with three regional Federal Reserve Bank presidents — Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan — dissenting in favor of a rate hike, according to CNBC’s coverage of the meeting. Inflation has remained above the Fed’s 2% target for more than five years, the underlying tension driving the split.

A New Chair, A Different Communication Style

The decision was the latest under Fed Chair Kevin Warsh, who took over after Jerome Powell’s term expired on May 15, 2026, according to iShares’ 2026 Fed outlook. Warsh has deliberately shortened the Fed’s post-meeting statements and pulled back on the kind of explicit forward guidance markets had grown accustomed to under his predecessors — he has reportedly dedicated one of five internal task forces specifically to rethinking how the Fed communicates, according to CNBC’s reporting. Warsh has publicly called inflation “a choice,” repeatedly emphasizing the importance of getting prices under control in recent congressional testimony.

At his post-meeting press conference, Warsh pushed back on characterizing the decision as a “pause,” instead describing it as “a rigorous review of the economic situation” and “a view of what our own homework is to try to resolve those questions in the period ahead,” according to a separate CNBC recap. Warsh has reportedly used the phrase “family fight” 13 times across five public appearances to acknowledge the committee’s internal divisions — an unusually candid framing for a sitting Fed Chair.

Why the Split Exists

Governor Christopher Waller has separately voiced concern that higher rates could become necessary without more inflation progress, even though he voted for the hold at this meeting. The full committee’s June projections penciled in one quarter-point increase by the end of 2026 — a notable shift from the rate-cutting path markets had priced in earlier in the year, according to the Fed’s own June 2026 Summary of Economic Projections, which explicitly flags that the federal funds rate outlook “is subject to considerable uncertainty” given how sensitive each participant’s view is to how inflation and employment data evolve from here.

Complicating Factors

Renewed U.S.-Iran tensions have already pushed mortgage rates near a one-year high independent of the Fed’s own decisions, since longer-term rates track Treasury yields and inflation expectations rather than the Fed funds rate directly, according to CNBC’s analysis. Separately, iShares had earlier projected that once a new Chair was confirmed, the Fed might seek one or two rate cuts to bring rates closer to a 3%-3.25% range — a path the July hold and hawkish dissents now put in serious doubt.

The next FOMC meeting is scheduled for September 15-16, 2026, and will include a fresh Summary of Economic Projections, according to Forbes’ Fed tracker — the next real test of whether Warsh’s committee can narrow its internal divide or whether the “family fight” framing becomes the defining feature of Fed policy through the rest of 2026.