Asean has a cross-border payments dream that is slowly moving closer to coming true. Despite the very real interoperability challenges, Southeast Asian countries nonetheless seem determined to build a payments rail of their own that can boost the use of local currencies – perhaps at the dollar’s expense – while speeding up transaction time, lowering transaction costs and strengthening connectivity among their respective financial systems. The latest countries to sign onto this project are the Philippines, Vietnam and Brunei.

In late August, Indonesian central bank governor Perry Warjiyo said that the Philippines, Brunei and Vietnam will join Indonesia, Thailand, Malaysia and Singapore in an interconnected QR code-based payment system. However, those three countries have to take certain steps before they can join. For instance, the Philippines must consolidate its QR payment industry. For its part, Vietnam officially joined the initiative on the sidelines of the recently concluded 10th ASEAN Finance Ministers’ and Central Bank Governors’ Meeting in Indonesia, but it too must set up a national QR payment system. For its part, Brunei plan to establish a national regulatory framework to give its financial authorities the power to regulate and oversee domestic payment systems.

We have reason to believe that Asean will at least partially achieve its regional payment connectivity objective because, on the one hand, it’s already almost halfway there, and on the other, the persistent strength of the dollar in recent years has weakened Southeast Asian currencies, with adverse affects owing to their tendency to be net food and energy importers. Central bankers thus are highly motivated to use local currencies for more transactions.

However, if the greenback becomes less widely used, another currency from the region may take its place, acting as a de facto reserve currency. The most obvious candidate is the Singapore dollar because of the city-state’s strength as a financial center and overall economic prowess. If businesses were to decide to hold more working capital in Singapore dollars, it might weaken the purchasing power of other currencies in the region. Central banks might have to intervene.  

Another concern is that such a regional payments system might have limited financial inclusion capabilities – limited because it’s unlikely to dramatically improve on already successful efforts in countries like Indonesia, the Philippines and Vietnam, and the system might not extend to the region’s poorest countries for different reasons. Myanmar, for instance, is under sanctions and on the FATF blacklist. At present, there are both legal and regulatory barriers that would prevent it from joining a regional Asean payments system. Additionally, it is uncertain if Cambodia and Laos have the digital financial infrastructure and wherewithal to participate.

With that in mind, whether Asean can achieve its dream of regional payments connectivity will probably depend on how ambitious it wants to be.