KUALA LUMPUR (Nov 13): Malaysia, Indonesia, Thailand and the Philippines agreed on Friday to a central bank pact to promote the use of local currencies in cross-border trade and investment.

The aim is to reduce foreign exchange risks and transaction costs associated with multiple currency conversions, according to a statement from Bank Negara Malaysia (BNM) which also includes Bank Indonesia, Bank of Thailand and Bangko Sentral ng Pilipinas as signatories.

“The initiative is expected to gradually expand local currency transactions to support economic activities and strengthen regional financial cooperation and economic resilience,” the statement read.

The memorandums of understanding (MOUs) establishes a framework to facilitate the settlement of bilateral transactions in their respective local currencies. The agreement supersedes bilateral MOUs signed by Malaysia, Indonesia and Thailand in August 2023 to bring in the Philippines into the pact.

The MOU was signed by BNM governor Datuk Seri Abdul Rasheed Ghaffour, along with Destry Damayanti, Vitai Ratanakorn and Eli Remolona Jr, the governors of their respective central banks.

The four central banks said they would continue collaborating on the development and implementation of the framework to gradually expand local currency transactions, support economic activities and strengthen regional financial cooperation and resilience.

The agreement builds on earlier efforts by Malaysia, Indonesia and Thailand to deepen local currency settlement arrangements.

In February 2025, the three central banks introduced harmonised operational guidelines and expanded the framework to cover portfolio investments, in addition to trade in goods and services and direct investments.

A few months later, they appointed additional commercial banks as cross-currency dealers to facilitate settlements and improve businesses' access to local currency liquidity.