Southeast Asia, like much of the rest of the world, is losing patience with King Dollar.
The weaponisation of the world’s reserve currency, for example through sanctions on those deemed to be bad actors — such as Russia for its war in Ukraine — has pushed even typically diplomatic Southeast Asians to warn the United States of the consequences.
In a conference in Singapore on Tuesday, former officials spoke about de-dollarisation efforts under way and what economies in the region should be doing to mitigate the risks of a still-strong dollar that has weakened local currencies and become a tool of economic statecraft.
“The US dollar is a hex on all of us,” George Yeo, former foreign minister of Singapore, said at the conference hosted by the ISEAS-Yusof Ishak Institute.
“If you weaponise the international financial system, alternatives will grow to replace it” and the US dollar will lose its advantage, he added.
While few expect to see the end of the dollar’s global sovereign status anytime soon, Yeo said that the risk of it happening needs to be taken more seriously.
“When this will happen, no one knows, but financial markets must watch it very closely,” said Yeo, who is a visiting scholar at the Lee Kuan Yew School of Public Policy at the National University of Singapore.
After gaining 6.2% against a basket of other major currencies in 2022, the dollar is down 0.67% in the first trading days of this year, through the end of Tuesday, according to the Bloomberg Dollar Spot Index.
Yeo noted that in times of crisis, the dollar rises further — as with levies on Russia that have left Russian banks estranged from a network that facilitates tens of millions of transactions every day, forcing them to lean on their own, much smaller network instead. That has put more pressure on third-party countries, too, which have to rely unduly on use of the US dollar.
Thomas Lembong, a former Indonesian trade minister, applauded Southeast Asian central banks that already have developed direct digital payment systems using local currencies, and encouraged officials to find more ways to avoid depending too much on the greenback.
“I have believed for a very long time that reserve currency diversification is absolutely critical,” said Lembong, a co-founder and managing partner at Quvat Management Pte Ltd.
Supplementing the use of the dollar in transactions with the euro, renminbi and yen, among others, would lead to more stable liquidity, and ultimately more stable economic growth, he said.
The 10 Asean countries are just too disparate to establish a common currency as with the euro bloc. But Lembong said he was “deeply passionate” on the subject of the dollar as a global reserve currency.
The direct digital payment systems — which have boosted local currency settlement between Malaysia, Indonesia, Singapore and Thailand — are “another great outlet for our financial infrastructure”, he said.