RI launches first foreign currency contracts

The Indonesia Commodity and Derivatives Exchange (ICDX) launched on Wednesday foreign currency futures contracts, the first financial futures contracts in the country, in a move to help local financial institutions to manage their foreign reserves and benefit from currency price movements.

The new contracts, which comprise paired contracts of 27 currencies from G20 and G7 economies, including China, France, Germany, Japan, India, Russia, South Korea, and the US will be offered at US$100,000 per lot, ICDX chief executive officer Megain Widjaja said on Wednesday.

“The varied currency pairs offered will allow participants to have more choices in trading, and this will attract foreign reserves back to Indonesia [...] With the presence of this new instrument, investors can take advantage from the price movement of currencies as they can get higher returns,” he told reporters during a briefing on the futures launch.

The new contracts were also expected to bring back foreign exchanges earned from the country’s exports, in line with the Central Bank’s policy, Megain added.

At present, a huge portion of foreign currency-denominated export earnings are kept overseas as financial institutions in other countries offer higher returns.

Last year, Bank Indonesia (BI) passed a new rule requiring exporters and debtors to bring their foreign currencies back to the country with export earnings alone estimated to stand at US$29 billion.

Indonesia, the world’s top exporter of commodities, including crude palm oil (CPO), coal and tin, has benefitted from a commodity boom in recent years.

Around $2 billion of foreign currencies owned by Indonesians are traded overseas on a daily basis, according to BI’s records.

Megain said that in the initial stage, the contracts would be offered to institutional market participants, including banks and investment managers, but he declined to comment on daily transaction targets.

Commodity Futures Trading Supervisory Board (Bappebti) head Syahrul Sempurnajaya said that the new instrument would become a new investment alternative for domestic business stakeholders to hedge their assets.

“The foreign exchange futures contracts may help business players to minimize the risks of foreign exchange trading, and create a more transparent process of hedging and price formulation,” he said on the sidelines of the launch.