LCT, ASEAN’s Decision to Reducing Its Dependance on the US$

THE Association of Southeast Asian Nations (ASEAN) is taking a significant step towards reducing its dependence on the U.S. dollar by promoting the use of local currencies in cross-border transactions. The initiative, known as the Local Currency Transaction (LCT) program, aims to enhance economic resilience, reduce currency volatility risks, and promote trade and investment in the region.

The use of local currencies in cross-border transactions offers several benefits, including:

1. Reduced Transaction Costs: By settling transactions in local currencies, ASEAN countries can avoid the costs associated with converting currencies, such as transaction fees and exchange rate losses.
2. Increased Efficiency: The use of local currencies can streamline trade and investment processes, reducing the complexity and time required for transactions.
3. Enhanced Economic Stability: By reducing dependence on the U.S. dollar, ASEAN countries can mitigate the risks associated with currency fluctuations and promote economic stability.

The ASEAN LCT program has shown promising results, with:
a. Increased Transaction Value: The total value of LCT transactions reached US$14.1 billion in July 2025, a significant increase of 112% compared to the same period in the previous year.
b. Growing Customer Base: The number of customers using LCT has increased, with an average of 7,568 customers per month in 2025, up from 5,020 customers per month in 2024.
c. Expanded Partnerships: The program has been successful in promoting partnerships among ASEAN countries, with six countries currently participating in the initiative.

ASEAN LCT program is part of a broader global trend towards de-dollarization, where countries are seeking to reduce their dependence on the U.S. dollar and promote the use of alternative currencies. This trend is driven by:

1. Diversification of Currency Holdings: Countries are seeking to diversify their currency holdings to reduce their exposure to US dollar volatility and promote economic stability.
2. Increased Use of Alternative Currencies: The use of alternative currencies, such as Euro and Swiss franc, is increasing in global foreign exchange reserves.
3. Growing Importance of Local Currencies: The use of local currencies in cross-border transactions is becoming increasingly important, as countries seek to promote economic stability and reduce dependence on foreign currencies.

There are challenges and opportunities for the ASEAN LCT that need to be addressed, including but not limited to:
a. Infrastructure Development: ASEAN countries need to invest in infrastructure development, including payment systems and financial infrastructure, to support the growth of LCT.
b. Regulatory Frameworks: ASEAN countries need to develop and harmonize regulatory frameworks to support the use of LCT and promote economic integration.
c. Increased Adoption: ASEAN countries need to promote the adoption of LCT among businesses and individuals, through education and awareness campaigns.

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