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Asean to implement digital payment system for intra bloc trade
- Thread starter k1976
- Start date
- ASEAN nations are working together on a cross-border payments system that’s hoped to deepen financial inclusivity around the region
- Residents in Singapore, Indonesia, Malaysia and Thailand can now pay for goods and services in each other’s countries using local currencies, which analysts expect will boost tourism, consumer spending and remittance flows.
- Micro enterprises, small- and medium-sized businesses and the unbanked population are expected to benefit the most, experts say.
Regional connectivity is considered crucial to reduce the region’s reliance on external currencies like the U.S. dollar for cross-border transactions, particularly among businesses. The greenback’s strength in recent years has resulted in weaker ASEAN currencies, which hurts those economies since the majority of the bloc’s members are net energy and food importers.
“The system will forgo the U.S. dollar or the Chinese renminbi as intermediary,” said Nico Han, a Southeast Asia analyst at Diplomat Risk Intelligence, the consulting and analysis division of current affairs magazine The Diplomat.
A unified cross-border digital payment system will “foster a sense of regionalism and ASEAN-centrality in managing international affairs,” he added. “This move becomes even more crucial in light of escalating tensions among major global powers.”
“The system will forgo the U.S. dollar or the Chinese renminbi as intermediary,” said Nico Han, a Southeast Asia analyst at Diplomat Risk Intelligence, the consulting and analysis division of current affairs magazine The Diplomat.
A unified cross-border digital payment system will “foster a sense of regionalism and ASEAN-centrality in managing international affairs,” he added. “This move becomes even more crucial in light of escalating tensions among major global powers.”
How it works
By connecting QR code payment systems, funds can be sent from one digital wallet to another.These digital wallets effectively act as bank accounts but they can also be linked to accounts with formal financial institutions.
For instance, Malaysian tourists in Singapore can make a payment with Malaysian ringgit funds in their Malaysian digital wallet when making a transaction. Or, a Malaysian worker in Singapore can send Singapore dollar funds in a Singaporean digital wallet to a recipient’s wallet in Malaysia.
Fees and exchange rates will be determined by mutual agreement between the central banks themselves.
For now, a region-wide system like this doesn’t exist in other parts of the world but down the road, the Bank of International Settlements, based in Switzerland, hopes to connect retail payment systems across the world using QR codes and mobile phone numbers.
Economic benefits
QR payments don’t impose fees on cardholders and merchants. They also boast of better conversion rates than those set by private payment processors like Visa or American Express.Micro enterprises as well as small- and medium-sized businesses, or SMBs will emerge as winners from regional payment connectivity, experts say. According to the Asian Development Bank, such companies account for over 90% of businesses in Southeast Asia.
“SMBs can avoid the expenses associated with maintaining a physical point-of-sale system or paying interchange fees to card companies,” explained Han from Diplomat Risk Intelligence.
Marginalized individuals from low-income backgrounds also stand to benefit. As the payment system works via digital wallets and doesn’t require a traditional bank account, it can be used by the unbanked population.
“The system has the potential to improve financial literacy and wellbeing for the underbanked population,” Han noted.
Currency pressure ahead
While strengthening payment connectivity within the region has the potential to reduce payment friction and accelerate digital transition, it could inadvertently put pressure on certain currencies, particularly the Singapore dollar.“The potential scenario of the [Singapore dollar] emerging as a de facto reserve currency within the region poses a challenge that ASEAN states will need to confront,” said Lee.
With the [Singapore dollar’s] strength and stability, both international and regional businesses may opt to hold more of their working capital in [Singapore dollars], relying on the new payment network for efficient currency conversion,” he explained.
If that happens, it could weaken the purchasing power of other currencies in the region and result in higher imported inflation if central banks don’t intervene.
In such a scenario, authorities may feel the need to impose capital restrictions in order to protect their respective currencies, which could undermine the very purpose of establishing a regional payment network.
Regulations pose another challenge.
Central banks will have to address security and fraud issues, plus undertake the task of educating the public to embrace the new payment system, said Han.
“These factors can collectively contribute to a time-consuming process,” he warned.
This kind of coordinated action will require strong political will from regional leaders and it remains to be seen if ASEAN members can come together to successfully implement such an ambitious venture.
If that happens, it could weaken the purchasing power of other currencies in the region and result in higher imported inflation if central banks don’t intervene.
In such a scenario, authorities may feel the need to impose capital restrictions in order to protect their respective currencies, which could undermine the very purpose of establishing a regional payment network.
Regulations pose another challenge.
Central banks will have to address security and fraud issues, plus undertake the task of educating the public to embrace the new payment system, said Han.
“These factors can collectively contribute to a time-consuming process,” he warned.
This kind of coordinated action will require strong political will from regional leaders and it remains to be seen if ASEAN members can come together to successfully implement such an ambitious venture.
They already implement it. Bypass visa and mastercard which charges humongous amount in FX fees.
You can choose several payment options using the phone. Or certain debit card.
You can choose several payment options using the phone. Or certain debit card.
Rise of Trade Blocs era
Previously, they convert to use first. Now no need.
If they sort of form a currency board dependent on one another, as the economy of asean 5 basically similar ( local Chinese dominated) , it will behave like the Euro without being one.
Hopefully this is a right step forward for this region
Scammers are wringing their hands with anticipation!!!
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