KUALA LUMPUR (Feb 17): The central banks of Malaysia, Indonesia and Thailand have adopted a consolidated local currency transaction framework to promote local currency-denominated cross-border transactions.

In a joint statement on Monday, Bank Negara Malaysia (BNM), Bank Indonesia and the Bank of Thailand said they have adopted a harmonised Local Currency Transaction Framework Operational Guidelines (LCTF OG) and expansion of eligible cross-border transactions under the framework.

“It (the harmonised framework) consolidates bilateral guidelines previously established between the countries and allows for streamlined processes with greater transparency for participating financial institutions and their users,” the central banks explained.

“The harmonised LCTF OG sets out operating parameters that are applicable to all participating countries while accommodating specific local regulatory requirements of each jurisdiction,” they added.

As to the framework’s expansion, portfolio investments have been included as eligible underlying transactions in addition to trade in goods and services and direct investments.

This, the central banks said, enables investors to have greater opportunities to conduct transactions in local currencies while mitigating exchange rate risks.

Following this expansion, the central banks welcome additional qualified commercial banks to participate in and support the expanded LCTF.

“These banks will play a vital role in facilitating local currency transactions, leveraging their expertise, operational strength and cross-border networks," they said.

Since the implementation of the LCTF, local currency transactions for bilateral trades have been on an upward trend, according to the central banks.

“This harmonised framework and operation will provide businesses with enhanced options for cross-border transactions.

“It also reaffirms the countries’ commitment to promote the use of local currencies in regional trade and investment,” they added.