Malaysia, Indonesia & Thailand's central banks adopt unified local currency transaction framework, expand cross-border transactions

The harmonised Local Currency Transaction Framework Operational Guidelines include portfolio investments as eligible underlying transactions in addition to trade in goods and services and direct investments.

Bank Indonesia, Bank Negara Malaysia, and the Bank of Thailand have officially adopted the harmonised Local Currency Transaction Framework Operational Guidelines (LCTF OG), marking a significant step in strengthening local currency transactions across the three nations. This initiative expands the scope of eligible cross-border transactions, further encouraging the use of local currencies.

According to a joint press release by the central banks, the new framework enhances consistency, scalability, and efficiency in facilitating local currency transactions. It consolidates previously established bilateral guidelines into a unified structure, streamlining processes and providing greater transparency for participating financial institutions and their users.

The harmonised LCTF OG sets standard operating parameters applicable across all participating countries while accommodating specific local regulatory requirements. A key enhancement includes the addition of portfolio investments as eligible underlying transactions, alongside trade in goods and services and direct investments.
This expansion provides investors with greater opportunities to conduct transactions in local currencies while mitigating exchange rate risks.

The adoption builds upon the Framework for Cooperation to Promote Bilateral Transactions in Local Currencies among Indonesia, Malaysia, and Thailand, which was established through the signing of three memoranda of understanding (MoUs) in August 2023.

With this foundation in place, the harmonised framework will seek to strengthen cross-border financial operations, offering businesses enhanced options for transactions. It also aims to reaffirm Malaysia, Indonesia, and Thailand's commitment to promoting local currency use in regional trade and investment.