The mobile phone is Asia’s hedge against the dollar

Currency values fluctuate all the time, but some changes leave a lasting impression on the banking industry. In the Bretton Woods-era of fixed exchange rates, the 1967 devaluation of the British pound was one such seminal event. It made demand for dollars explode in Asia. Out of that craze, Dick van Oenen, an enterprising Dutch currency trader at Bank of America, fashioned an entire cross-border financial centre in Singapore.

More than a half-century later, the US currency is once again in the limelight, as evidenced by its surge to a 20-year high and its weaponisation by Washington to isolate Russian President Vladimir Putin over his war in Ukraine. This, too, will leave a long shadow. But this time around, the real opportunity for Asian banks is to help moderate the demand for dollars, a process analysts refer to as "de-dollarisation." Financiers can't dictate the choice of invoicing currency to exporters; nor can they taper investors' safe-haven yearnings. What they can do, however, is to cut the American currency out of those cross-border payments where it's superfluous. 

Technologically, it's become feasible to do this. Starting with South Korea in 2001 — and China and India a decade later — 24/7, real-time, retail payments have taken off across Asia, with smartphones and QR codes speeding up adoption in the past few years. An individual or business can collect a claim instantaneously and nearly free of cost. This progress is remarkable because Indonesia went live with its BI-FAST system in 2021, two years before the proposed launch of a comparable service in the US.

Now policy makers want to bring together what each Asian nation is doing successfully within its own borders to create a bigger network. Such a link-up of domestic payments systems could become a reality for five of Southeast Asia's largest economies — Indonesia, Thailand, Singapore, Malaysia and the Philippines — by November, Bank Indonesia Governor Perry Warjiyo said recently in a panel on the sidelines of a meeting of the Group of 20 finance ministers and central bank governors in Bali.

According to the plan, payments transacted in Thailand using an Indonesian app would be directly exchanged between rupiah and baht, bypassing the need for US dollar as intermediary, Bloomberg News reported.

What this means is that for small-value purchases, bank accounts in any of the five participating economies will become practically interoperable in the other four. Singaporeans visiting Indonesia won't have to put up with the hidden fees and unfavourable exchange rates of international credit card transactions; money will get debited from their Singapore dollar deposit facilities back home and credited into merchants' rupiah-denominated local accounts. With a QR code facilitating payments, the process will feel no different from a domestic transfer.

Last year, Singapore's PayNow established the world's first cross-country link with Thailand's PromptPay to enable real-time fund transfers to mobile numbers in the other country. Think of the proposed regional network as a geographical extension of the same idea, with an added, merchant-friendly feature: Users can pay via QR code; they don't need the payee's phone number. That's a functionality that Indonesia, Malaysia and Thailand have recently started offering to one another's banking customers.

It's at the back end where things will get busy. One big institution from each country will likely be tasked to settle the payments. After the customer scans the QR code, her bank in Country A will display its fees and the exchange rate to her on the app. If she agrees, the sending bank will dispatch funds (minus its charges) to the settlement bank in Country A, whose counterpart in Country B will pay out the money to the receiving bank. Twice a day, the two larger intermediaries in the middle will clear each other's claims.

The important thing about this club is that membership can be kept open. Any country that agrees to abide by the common rules can join, helping create a World Wide Web across the 60-plus nations where the domestic networks are already fast enough to credit the payees' bank accounts in real time at any hour of the day or night.

As the Singapore-Thailand link has demonstrated, such a nexus can lead to cost savings for users in terms of more competitive exchange rates and low or no bank charges. To achieve welfare gains for consumers on a broader scale will be a worthwhile goal in its own right; not having to rely on the US currency to grease the wheels of commerce should make the idea even more appealing.

A half-century ago, the rich Chinese diaspora in Hong Kong, Taiwan, Malaysia and Indonesia wanted exposure to the dollar during Asian hours, and banks in Singapore gave it to them. Now policy makers want their economies to do with a little less of the pricey currency they can't print. With the help of 24/7 mobile payments, banks in the region will make that possible, too.

Sketch: TBS

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.