The central banks of South Korea and Indonesia have joined in the international move away from the US dollar, signing a memorandum of understanding saying that they will promote bilateral trade in national currencies.
The move will allow South Korean and Indonesian companies to reduce exposure to exchange rate risks and lower transaction costs, according to a joint statement by the two nations.
The Bank of Indonesia and the Bank of Korea emphasized they would enhance their collaboration through the sharing of information and maintaining regular discussions, as the two nations strengthen their financial ties.
The two nations signed the agreement on the sidelines of the 26th ASEAN+3 Finance Ministers and Central Bank Governors’ Meeting, which had begun on May 2nd, in the South Korean city of Incheon.
The ASEAN+3 group is made up of the ten member states of the Association of Southeast Asian Nations, as well as China, Japan, and South Korea.
The shift away from the dollar for use in international trade settlements has been gaining momentum within major economic blocs, such as the ASEAN and the BRICS group, whic is made up of Brazil, Russia, India, China, and South Africa.
The initial push that has led to the present momentum away from the dollar began with the sanctions levied against Russia, following the invasion of Ukraine. As Moscow offered cheap, discounted energy, other nations gained an incentive to find ways to settle their trade with the Kremlin, outside of the dollars and euros that Russia was blocked from trading in.
As other nations began seeking means of settling international obligations outside of the dollar and euro, they also saw the benefits of not being tied to a means of settlement which could suddenly be cut off for political reasons, with grave economic consequences.
Last Month, Perry Warjiyo, the head of the Indonesian central bank, said Indonesia would move away from the dollar with countries such as Thailand, Malaysia, China, and Japan. Earlier, Brazil and China signed their own agreement in March, agreeing to trade in their own currencies, eliminating the dollar as an intermediary.
