One of the leading ASEAN countries, Indonesia, could face huge consequences if it pursues the idea of de-dollarization. The country is heavily dependent on the US dollar for several purposes.
As ASEAN countries are busy collectively formulating their currency, launching a currency that competes with the US dollar could backfire and cause chaos for the bloc's ten countries.
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Possible consequences of de-dollarization for Indonesia
Economic implications
ASEAN countries are busy creating their currency systems. This system is being prepared to launch a unified approach to currency dynamics and at the same time create a contemporary currency that can compete with the US dollar and the euro.
Despite the grand ideas, the derailment of the US dollar could be fatal for these countries as a collective. Indonesia in particular could face serious economic consequences that could throw the region into turmoil. If Indonesia pursues the idea of de-dollarization, for example, it could witness currency fluctuations, with the Indonesian rupiah plunging to new lows.
This could lead to Indonesia experiencing a sharp rise in inflation, which would simultaneously indicate a decline in user interest and a decrease in purchasing power.
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Trade implications
A shift away from the US dollar could also have implications for trade. Indonesia could face stiff resistance from countries that prefer the US dollar. The dollar slippage could lead to Indonesia facing certain trade restrictions and tariffs, which could hamper its overall expansion on a global scale. According to BIS factsThe dollar drives 90% of global transactions, which is difficult for Indonesia to achieve.
Financial and social implications
Similarly, Indonesia’s shift away from the US dollar poses significant financial and social risks. For example, Indonesia could face reduced access to international markets, as it would need US dollars to trade and invest in global markets.
The country could also face high borrowing costs due to reduced investor interest. The region's tourism sector could be severely affected, leading to low GDP figures.
In addition, Indonesia's foreign investment portfolio may decline drastically, causing the country to face slow development and economic growth.
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In terms of social impacts, dedollarization could leave Indonesia facing problems related to poverty and unemployment.
The decline in economic activity could have a knock-on effect on the region, leading to lower government revenues. This could impact various public services.