The Chinese government is planning to work with other Asian nations to strengthen the use of local currencies in trade and investment as part of a broader plan to bolster regional economic strength, according to Yi Gang, the governor of the country’s central bank.
“Emerging markets should improve their resilience,” Yi said on Wednesday during a televised speech at a G20 event hosted by Indonesia. “This is where regional cooperation has a key role to play.”
The official highlighted that the latest progress in using local currencies of emerging Asian nations in trade and investment strengthened the region’s financial safety net against external shocks.
According to Yi, bilateral currency swaps among the Association of Southeast Asian Nations (ASEAN) regional grouping – China, Japan and South Korea – have reached $380 billion.
The head of the regulator also called for deeper market communication among the central banks from advanced economies, adding that it would help to mitigate the spillover effect from pandemic-related risks.
In January, the People’s Bank of China extended a bilateral currency swap agreement with Bank Indonesia for three years to promote deeper financial cooperation and boost investment activity.
Jakarta expressed full support for the expanded use of local currencies in trade and investment, instead of the US dollar, to ensure stability in global financial markets as pandemic-era stimulus is withdrawn. According to Indonesian Finance Minister Sri Mulyani Indrawati, local currency settlement (LCS) arrangements, which cut demand for the US dollar, should be replicated more broadly globally to manage shocks.
Asian nations are raising concerns over potential capital outflows from emerging economies as the US Federal Reserve had previously signaled a tightening of the US state monetary policy. The Fed is expected to launch its tightening cycle in March, with an interest rate hike of 25 basis points. Meanwhile, some analysts project a more aggressive half-point move to stamp down inflation.