The elusive Digital ASEAN: Why a unified CBDC remains a distant ideal (Part 3 of 4)

This article is the third part of a four-piece series. Here, you can find Part 1 and Part 2.

I. Precursors to a future ASEAN CBDC: Paving the digital way

A unified ASEAN CBDC is still a long way off, but the region is working hard on a number of ambitious projects that are important first steps, laying the groundwork, establishing confidence, and encouraging the spirit of cooperation that will support any future regional digital currency ecosystem. These initiatives show ASEAN's dedication to improving digital payments and integration, even though complete CBDC interoperability is still the long-term, difficult objective.

1. ASEAN Regional Payment Connectivity (RPC): This is arguably the most important and well-known project. The RPC, which was introduced in late 2022, intends to link ASEAN's national immediate payment systems. "The Regional Payment Connectivity (RPC) program is at the centre of this change... According to an AMRO report (April 2025), RPC reduces costs and transaction time by enabling payments in local currencies and doing away with pointless processes. Eight ASEAN countries have joined RPC as of June 2025, and bilateral QR payment links—such as Myanmar's DuitNow, Indonesia's QRIS, Vietnam's VietQR, Cambodia's KHQR, Singapore's PayNow with Thailand's PromptPay, and Lao PDR's Lao QR—are growing quickly. By the end of 2025, complete ASEAN-wide QR code compatibility is even anticipated (Xinhua, June 2025).
   • Benefit as precursor: The key "rails" for cross-border retail payments are being constructed by RPC utilising the current national currencies. By introducing citizens and businesses to quick, inexpensive digital cross-border transactions, this promotes trust in digital banking and highlights the real advantages of regional integration. These already-existing RPC links might be easily integrated with national CBDCs if they are ever created, offering an even more effective and safe underlying layer of central bank money.

2. Local currency settlement (LCS) frameworks: ASEAN central banks are aggressively promoting LCS frameworks to supplement RPC. In order to lessen dependency on significant foreign currencies like the USD, these bilateral and multilateral agreements promote the use of local currencies for commerce and investment within the region. For example, Indonesia has LCS frameworks with a number of nations, including China, while Malaysia has frameworks with Thailand and Indonesia (Xinhua, June 2025).
   • Benefit as precursor: LCS lowers foreign exchange (FX) expenses and lessens exposure to fluctuations in other currencies. The intra-regional financial climate is more stable when the LCS framework is strong. The introduction of national CBDCs could further simplify LCS by offering immediate digital settlement in local currencies, increasing the procedure' effectiveness and appeal to companies. Increasing regional monetary sovereignty and economic resilience requires this crucial step.

3. ASEAN Digital Economy Framework Agreement (DEFA): As of May 2025, DEFA is a comprehensive strategic roadmap that is being negotiated with the goals of establishing a unified regulatory framework for digital payments, facilitating trusted cross-border data flows, and harmonising digital trade regulations. "DEFA transforms this challenge into an opportunity for greater resilience by harmonising digital trade rules, enabling trusted cross-border data flows, and establishing a coherent regulatory framework for paperless trading, e-commerce, cybersecurity, digital identity and digital payments," according to a World Economic Forum report (May 2025).
   • Benefit as precursor: Establishing the legal and regulatory framework required for any sophisticated digital financial infrastructure, including interoperable CBDCs, depends heavily on DEFA. In order for the private sector to participate and innovate in the digital payments area, it resolves regulatory divergence, reduces transaction costs for digital trade, and establishes a more predictable working environment.

4. Wholesale CBDC explorations (e.g., Project mBridge): As of June 2024, Project mBridge, which is led by the Bank for International Settlements (BIS) Innovation Hub and involves the Bank of Thailand, the People's Bank of China's Digital Currency Institute, the Central Bank of the United Arab Emirates, and the Hong Kong Monetary Authority, has advanced to the Minimum Viable Product (MVP) stage. Its objective is to investigate a multi-CBDC platform that uses DLT for quick, inexpensive, and safe international wholesale payments and foreign exchange operations. In the middle of 2024, Project mBridge achieved the minimal viable product (MVP) level. According to a BIS report (November 2024), the project's goal was to investigate a multi-central bank digital currency (CBDC) platform that would be shared by participating central banks and commercial banks. It was constructed using distributed ledger technology (DLT) to facilitate instantaneous cross-border payments and settlement.
   • Benefit as precursor: Using wholesale CBDCs, mBridge is demonstrating the technological viability of cross-border DLT-based interbank settlement, despite not being a direct retailer. The knowledge gained by mBridge about technical interoperability, legal frameworks, and governance is crucial for any ASEAN CBDC in the future. By tackling the issues of correspondent banking head-on, it shows how central banks may work together to create a common digital infrastructure for international financial transactions.
   

II. Economic benefits and seamless integration with China via Digital Yuan

Building on these foundations, an ASEAN CBDC ecosystem provides significant economic advantages and a clear route to more seamless commercial integration with China, especially through its Digital Yuan (e-CNY):

1. Greatly enhanced Dealflow and investment climate:
   • Reduced friction, increased volume: Businesses, especially SMEs engaged in intraregional and China-ASEAN commerce, benefit from lower cross-border payment costs and faster processing through larger profit margins and lower working capital requirements. By fostering a more alluring investment environment, this "ease of doing business" attracts both foreign and domestic foreign direct investment.
   • Programmable green finance: As previously mentioned, CBDCs' programmability makes green investments more secure. This has the potential to facilitate the allocation of substantial funds from wealthy ASEAN members and foreign investors, especially those from China, to the sustainable development initiatives of less wealthy ASEAN countries. As an illustration, a Chinese business investing in a Laos renewable energy plant might utilise e-CNY, which is instantaneously transformed to a Lao CBDC (Lao QR already linked to others). Funds would be distributed automatically upon verifiable milestones, guaranteeing transparency and impact.

2. Strengthened AML and CFT:
   • The immutable records and transparent, traceable nature of CBDC transactions on DLT give financial intelligence units access to previously unheard-of technologies. This makes it much easier to identify and stop illegal financial movements, such as trade-based money laundering, which is common in major trading blocs. Because regulatory inspection can be applied more effectively to verifiable digital transactions, this expanded AML framework for trade between China and ASEAN fosters mutual trust and lessens compliance obligations for legal enterprises.

3. Reduced cross-order costs:
   • There are several levels of costs and delays associated with the present correspondent banking system, which frequently uses the US dollar as an intermediary currency. Direct, real-time settlement in local currencies would be made possible by an interoperable ASEAN CBDC that might make use of LCS. "This process enables faster, cheaper, and more transparent cross-border payments while promoting financial inclusion, especially for micro, small, and medium enterprises (MSMEs)," according to a report by AMRO (April 2025). Both individuals sending remittances and businesses involved in trade greatly benefit from this cost decrease.

4. Enhanced investment climate and “investability”:
   • Beyond project funding, an ASEAN CBDC ecosystem's general openness, effectiveness, and risk mitigation make the entire region more appealing to investors. Investor confidence is raised and the cost of capital is decreased through simplified operations and improved compliance capabilities. This directly increases "investability," which helps poorer ASEAN countries draw in more funding for social programs, economic development, and vital infrastructure.

5. Seamless trade integration with China via Digital Yuan:
   • The biggest trading partner of ASEAN is China. An important opportunity is presented by the ongoing development and pilots of China's Digital Yuan (e-CNY). Trade between China and ASEAN would be completely transformed if an ASEAN CBDC ecosystem (interoperable national CBDCs) were to directly interoperate with the e-CNY system.
   • Direct payment rails: Businesses might pay for goods and services directly in e-CNY or a corresponding ASEAN national CBDC rather than using SWIFT and converting between several fiat currencies. "Pilot programs for cross-border digital yuan payments... are designed to provide a more secure, efficient, and cost-effective payment system, improving liquidity and reducing transaction risks - benefits that will help ASEAN businesses expand their exports to China," according to an article in the Global Times (June 2025).
   • Reduced FX risk and cost: Direct transactions with e-CNY would minimise exposure to third-currency volatility and lower FX conversion expenses for ASEAN enterprises, and vice versa for Chinese businesses. For MSMEs, which are more vulnerable to currency swings, this is especially advantageous.
   • Enhanced supply chain finance: Advanced supply chain finance solutions that enable automated payments upon confirmed delivery or inspection could be made possible by programmable payments between e-CNY and ASEAN CBDCs, greatly simplifying trade. "The China-ASEAN Free Trade Area 3.0 - which includes cooperation in the digital economy, the green economy, and supply chain connectivity - to expand collaboration in future-facing digital and green sectors," reports the Global Times. These initiatives would naturally be complemented by an ASEAN CBDC framework.
   • Financial market access: Financial integration might be strengthened if a smooth digital currency bridge made it easier for ASEAN financial institutions to access China's bond and equities markets and vice versa.

III. The elephant in the room: The "sovereignty" impasse

The operationalisation of a really unified, Euro-like ASEAN CBDC will remain elusive despite these significant benefits because of the enduring demand for national control and the frequently false ideals of "sovereignty."

Governments and central banks vigorously defend their independence in monetary policy. It is completely unrealistic to think that a regional CBDC would in any way affect their capacity to independently control exchange rates, inflation, and the financial stability of their respective countries' economies. Given the enormous economic disparities within ASEAN, this is especially noticeable. It would be politically unpalatable for everyone and economically unstable for many to impose a single monetary policy.

Moreover, the notion of "sovereignty" encompasses governmental supervision, data governance, and even the selection of base technology. Countries are reluctant to give up control of private financial information or to follow a uniform regulatory standard that may not be in line with their own goals or capacities. Though reasonable from a national standpoint, this innate desire for autonomy leads to considerable regional fragmentation, impeding the complete integration and realisation of a CBDC ecosystem that functions seamlessly across borders.

The present approach to fostering interoperability for national payment systems through bilateral and multilateral connections (such as RPC) is a practical recognition of this fact. It enables countries to enjoy many of the cross-border advantages while maintaining their unique CBDC architecture and monetary policies. This strategy may not provide the "ideal" single-network efficiency of a fully unified regional CBDC, but it is the workable way ahead, demonstrating that advancement can be achieved by negotiating rather than directly challenging the strong and ingrained principles of national sovereignty. Accelerating these interoperability initiatives is now the task in order to genuinely "level up" financial access and opportunities for every person of the vibrant ASEAN bloc.

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