ASEAN nations, comprising ten Southeast Asian countries, are gearing up to launch a new currency. This currency, currently under construction, intends to rival the US dollar and carve out its global positioning. Discussion about the ASEAN US dollar competition is intensifying as the launch date approaches.
With rising US debt metrics and the weaponization of the US dollar, calls to derail the US dollar have grown fiercely loud. Will ASEAN’s bold move to injure the USD’s prestige ever fructify? Let’s find out.
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Why is ASEAN Moving Away From The US Dollar?
ASEAN nations are collectively working towards launching their currency systems with a multipolar currency narrative in mind. The purpose of spearheading the local currency agenda is to reduce its growing dependence on the US dollar.
Research conducted by ICS shows that a significant portion, exceeding 80%, of the outstanding international debt securities within Southeast Asia are denominated in US dollars.
“The Southeast Asian region relies on the US dollar as its primary foreign currency, and a significant portion of the outstanding international debt securities within Southeast Asia are denominated in dollars.” The blog later reiterated.
However, the winds of change have started to gnaw at the US dollar. With the rising US debt metrics, the countries are rethinking their financial policies to safeguard their economies.
Impact of Tightening US Monetary Policies
Tightening US monetary policies is also essential in changing ASEAN’s perspective towards the USD. Such policies can deliver high-end fluctuations in ASEAN’s regional currencies, which may jeopardize their economies in the long haul.
Per ICS, the US enjoys being the global finance entity. This helps the nation enjoy certain exclusive perks, including maintaining a sizeable current account deficit and accumulating substantial debt.
With countries pressured to pay dollar-denominated debt, this development can result in nations documenting significant upheavals in their economies, posing a risk of currency fluctuations.
“Countries burdened with significant dollar-denominated debt may face heightened vulnerability to currency fluctuations. And the reversal of capital flows, thereby increasing the risk of financial crises,” the blog shared.
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Why Will Happen If ASEAN Ditches The American Currency?
“If” the bloc decides to ditch the US dollar for good, it could usher in catastrophic effects for the USD as a whole. Reduced demand for the US dollar may result in the greenback noting major price anomalies.
At the same time, the reduced demand may jeopardize the US dollar’s status as the world reserve currency.
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This will help shift the focus to other currencies, with one of them being crowned as the next reserve currency, toppling the US dollar.