The Global Monetary System and the Use of Local Currencies in ASEAN+3

When the new corona virus (COVID-19) pandemic triggered the global economic crisis in March 2020, the US dollar appreciated while the prices of many other financial assets plunged. The US dollar also appreciated in the immediate aftermath of the Global Financial Crisis (GFC) in 2008. These two episodes signify the important role the US dollar plays as an international currency and the dominant role of the US dollar and the limited use of the local currencies for international transactions, especially in Asia. Using a wide variety of data on the use of currencies for international transactions, we find that the US dollar is the predominantly important currency in the Asian region for cross-border trade, investment, finance, international reserve holding and exchange rate management. In many aspects of international transactions, the use of local currencies in the ASEAN+3 countries is underdeveloped. Recently, the Chinese renminbi is on its way to becoming one of the major international currencies. However, it is still a long way for the renminbi to become a major currency even in the Asian region.