Asia’s Pragmatic Currency Pivot

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Author: DONG HE, chief economist of AMRO.
Publication: F&D Magazine, September 2026.
Central thesis: Asia’s leading economies are pragmatically diversifying away from an eight-decade relationship with the US dollar for international trade by building alternative clearing, settlement, and digital payment pathways that operate alongside existing global systems.
Regional scope: ASEAN+3 (Brunei Darussalam, Cambodia, Indonesia, Lao P.D.R., Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, plus China, Japan, and Korea).
Regional significance: These economies encompass more than a quarter of the world’s population and generate a quarter of global economic output.

Historical role:
- The dollar has been dominant in Asia since World War II.
- It still accounts for more than 80 percent of trade invoicing and nearly 85 percent of foreign exchange settlement in the ASEAN+3 bloc.
- More than half of regional banks’ cross-border assets and liabilities are denominated in dollars.
- Roughly two-thirds of official reserves are denominated in dollars.
Drivers of dollar dominance:
- Weight of the US economy, depth of US financial markets, credibility of US institutions, and the Federal Reserve’s role.
Sources of fragility:
- The dollar’s central role depends on continued confidence in the US as an open economy and in America’s ability to provide stable and predictable policy frameworks.
- Recent strains in US institutions and policy uncertainty can undermine confidence and raise concerns about the dollar’s reliability as the anchor of the international monetary system.

Structural shifts in trade:
- Two decades ago, nearly a third of value-added exports from the ASEAN+3 group were destined for the US; today, that share is down to a fifth.
- China and ASEAN each now absorb a tenth of the region’s production, up from about 6 percent each two decades ago.
Changing shock transmission:
- AMRO analytical modeling suggests shifts in regional domestic demand now affect neighboring economies more strongly than demand shocks originating in the US.
Policy implications:
- As production networks and business cycles become more regionally anchored, monetary policy in Asia will respond more directly to domestic and regional conditions, reducing sensitivity to US monetary policy.
- Expanding the use of regional currencies in trade invoicing and settlement can loosen the link between domestic credit conditions and US monetary policy, reduce structural currency mismatches, and allow central banks to calibrate policy more closely to domestic conditions.
Historical precedent:
- In the 1997 Asian financial crisis, the IMF stepped in with a $40 billion program.

Pragmatic regional cooperation:
- Asia did not pursue a European-style monetary union; instead, it focused on financial integration, stronger safety nets, and modernizing cross-border payment infrastructure.
Local currency settlement frameworks:
- Bilateral arrangements using local currencies for cross-border settlement via authorized financial institutions now operate between many ASEAN+3 economies (still modest in scale).
Retail cross-border payment linkages:
- Interoperable, QR code–based fast payment systems enable quick, low-cost cross-border transfers in domestic currencies for consumers, tourists, and businesses.
- Example linkage: Singapore’s PayNow and Thailand’s PromptPay.
- Expansion is occurring through multilateral initiatives, including Project Nexus.
China’s role:
- The renminbi is at the forefront due to China’s central role in regional trade and investment.
- Investments include expansion of the Cross-Border Interbank Payment System, rollout of the digital yuan, and increased foreign access to China’s government bond market to deepen sovereign asset pools.

Ongoing projects and pilots:
- Project mBridge connects the central banks of China, Hong Kong SAR, Thailand, and the United Arab Emirates through a shared distributed ledger platform for wholesale transactions with central bank digital currencies.
- Project Guardian, coordinated by the Monetary Authority of Singapore, explores tokenized assets and open digital infrastructure.
Tokenization explained:
- Converts diverse assets (gold, dollars, stocks) into digital “tokens” that computers can recognize and transfer, creating a common language for assets.
Potential benefits:
- Tokenization could eliminate the need to convert through an intermediary currency (e.g., the dollar) and enable direct currency-to-currency transactions.
- It can enhance direct liquidity on shared digital platforms and reduce reliance on long chains of dealer banks across time zones.
- Tokenized foreign exchange transactions could enable “atomic settlement,” where both sides of a transaction complete simultaneously, reducing settlement risk and improving liquidity—particularly for currencies currently excluded from major settlement systems.
Implementation challenges:
- Need to build interoperable digital financial infrastructures.
- Need to harmonize regulatory standards and cross-border compliance rules.
Existing legacy systems:
- The Continuous Linked Settlement System has reduced settlement risk for major currencies and is 24-year-old.

Emerging architecture:
- A layered system in which:
- The dollar remains the indispensable liquidity backstop for global financial markets and large-scale international transactions.
- Regional platforms, local currency settlement arrangements, and digital payment infrastructures facilitate trade and investment within Asian supply chains.
- Regional currencies mentioned as assuming a larger role include China’s renminbi and Japan’s yen.
Objectives:
- Balance technological innovation with institutional realities.
- Promote economic efficiency while enhancing resilience amid geopolitical and geoeconomic fragmentation.
Success factors:
- Technological innovation plus institutional trust, policy credibility, and international cooperation.
- Alignment of financial architecture with Asia’s growing economic weight.

Source: Asia’s Pragmatic Currency Pivot, DONG HE, F&D Magazine, September 2026.

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