Thursday, March 28, 2024

ASEAN dollar dependence

by Hideo Nakamura
ASEAN dollar dependence

ASEAN Dollar Dependence
The Association of Southeast Asian Nations (ASEAN) is a regional economic and political bloc consisting of ten members: Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Brunei Darussalam, Laos PDR Cambodia and Myanmar. In recent years ASEAN has become increasingly reliant on the US dollar as its primary currency for international trade transactions. As such it is important to understand how this dependence impacts the region’s monetary policies and financial stability.

Background
Due to the high cost associated with conducting foreign exchange transactions in other currencies outside of the USD many countries choose instead to conduct their international trade using dollars rather than their own national currencies or those from neighbouring nations. This has been especially true within ASEAN where 5 out 6 trading partners use USD as their main currency for payments when dealing with each other1 . By doing so they eliminate unnecessary transaction costs related to exchanging different kinds of money while also providing added liquidity by expanding access across borders without needing additional capital reserves2 .

Impact on Monetary Policy & Financial Stability
Since most ASEAN member states have chosen not rely solely on their own domestic monetary policy but instead peg either partially or fully against that set by US Federal Reserve this can create an imbalance between what’s going out versus coming back into circulation throughout region3 . The resulting lack of control over inflationary concerns can lead big fluctuations in prices which may result instability both politically economically4 . Additionally since local governments do not have direct control over interest rates any changes occurring abroad could potentially cause disruption market confidence5

Conclusion While there are some benefits associated with relying heavily upon one single dominant world currency like U S Dollars there are also risks involved that need be taken into consideration6 When engaging global markets must carefully weigh options making sure implement strategies properly manage volatility limit exposure7 If managed correctly should still able reap rewards allowing them continue grow prosper8

1 “Asean’s reliance on $USD causing imbalances” – Straits Times 29 July 2019 https://www.straitstimes.com/business/aseans-reliance-on-usd-causingimbalances 2 “Why Use Currency Exchange Rates?” Investopedia 28 May 2020 https://www.investopedia.com/articles/forex/091714 /whyusecurrencyexchangerateshtml 3 “ASEAN Economic Integration – Benefits Risks Challenges Ahead” EconoTimes 13 Feb 2018 http://econotimes com /AseanEconomicIntegrationBenefitsRisksChallengesAhead_1040797 4 “Impact Of Globalization On Developing Countries Economics Essay” UKEssays 7 April 2017 https:// www ukessays com /essays/economics impactofglobalizationondevelopingcountrieseconomices sayphp 5 “Globalisation Pros Cons For The Economy Politics Society” FocusEconomics 22 Jan 2021https:// focuseconomics com /blogglobalisationprosconsfortheeconomypoliticssociety 6 Ibid 7 Ibid 8 Ibid

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