Breaking Up With The Buck: Saudi Arabia, Southeast Asian Nations Swipe Left On US Dollar Dependence

As the balance of power between China and the U.S. continues to shift, heads of state across the globe are making choices to either steer away or get closer to each of the world's two largest economies.

In South East Asia and the Middle East, a trend to reduce reliance on the U.S. and a decades-old dependence on the U.S. dollar is gaining traction, as Saudi Arabia and ASEAN countries propose new measures.

Asian Countries Want Out Of The Dollar Dependence

On Tuesday, Malaysia's Prime Minister Anwar Ibrahim said that China is open to talks on the creation of an Asian Monetary Fund, in an effort to gain independence from the U.S.-led International Monetary Fund. 

The U.S. is the largest financial contributor to the IMF, as well as the largest voting bloc, which makes the international body subject to the U.S. domestic interests, as it holds effective veto power over many of the fund's decisions.

"There is no reason for Malaysia to continue depending on the dollar," the prime minister told the Malaysian parliament on Tuesday.

Anwar resurfaced the idea of an Asian Monetary Fund at the Boao forum in the Hainan province of China last week, reported Bloomberg.

The fund was first proposed by the Japanese government during the 1997 Asian financial crisis, but was never implemented.

Recent Fed policies on hiking interest rates have caused the U.S. dollar to strengthen in the global market. This is causing pain in countries that rely on dollar prices for international commerce, as is the case for many in the Southeast Asia region.

Last week, a meeting of ASEAN finance ministers and central bank governors had the issue of reducing dependency on the U.S. dollar, euro, yen, and British pound from financial transactions at the top of its agenda.

The Association of Southeast Asian Nations, is a political and economic union composed of 10 countries in Southeast Asia, including Malaysia, Indonesia, Thailand and the Philippines. The meeting highlighted the need to move to a local currency transaction scheme.

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The Global X FTSE Southeast Asia ETF ASEA, which follows the FTSE ASEAN Index, tracking the performance of companies from Indonesia, Philippines, Vietnam, Malaysia, Thailand and Singapore, is up 3.4% in the past month and over 9% in the last 6 months.

In the meeting, Indonesian President Joko Widodo urged his counterparts to gradually stop using foreign payment systems, including U.S.-based Visa Inc V and Mastercard Inc MA.

Moving away from Western payment systems is necessary to protect transactions from "possible geopolitical repercussions," Widodo said, according to an official report.

Out of the 10 countries in the trade association, only Singapore has instituted sanctions on Russia after its invasion of Ukraine.  

Widodo said that countries in the region need to become protected from the consequences of financial sanctions by the U.S. and the European Union on Russia.

Saudi Arabia's Crown Prince Doesn't Care About Pleasing The U.S. Anymore

Late last year, Saudi Arabia Crown Prince Mohammed bin Salman reportedly told associates that he was no longer interested in pleasing the U.S., as per a Wall Street Journal report. He said anything his country would do for the Western nation would need a favor in return.

On Sunday, a surprise OPEC+ announcement to cut oil production by about 1.2 million barrels proved that the prince's comments are more than words thrown to the wind.

Saudi Arabia is the largest oil producer in OPEC. The decision, which included a vote from Russia, and other OPEC-associated countries, garnered a response from the Biden administration, which deemed the cuts "not advisable."

Oil-focused ETFs reacted positively to the news of a cut in oil production, which is likely to bring oil prices up.

• The United States Oil ETF USO jumped on Monday after the announcement and is up 8.4% in 5 days.
• The broader Vanguard Energy Index Fund ETF VDE also spiked on Monday and is now 4% higher in the past 5 days.
• ProShares Ultra Bloomberg Crude Oil ETF UCO is up 14% in 5 days following a major spike on Monday.

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