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ICBC Indonesia to promote wider use of renminbi

Private lender Bank ICBC Indonesia is trying to cushion the impact from rupiah depreciation by promoting the renminbi as the main currency for its customers, particularly those who perform trade transactions

The Jakarta Post
Mon, March 23, 2015

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ICBC Indonesia to promote wider use of renminbi

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rivate lender Bank ICBC Indonesia is trying to cushion the impact from rupiah depreciation by promoting the renminbi as the main currency for its customers, particularly those who perform trade transactions.

The bank, part of the Beijing-based Industrial and Commercial Bank of China Ltd. (ICBC), promotes the renminbi '€” also known as China'€™s yuan '€” as an alternative to the US dollar to offer benefits for its customers, according to its executive.

Surya Wijaya, deputy head of strategic management and transformation office, said the lender'€™s customers still preferred the dollar as the currency for their settlements in exports and imports to China, despite China'€™s status as Indonesia'€™s largest trade partner.

At the national level, Surya said at least 90 percent of Indonesia'€™s settlements for exports and imports used the dollar as the main currency.

'€œCurrently, the usage of the renminbi for trade and transactions in Indonesia'€™s banking industry is below 10 percent and the percentage is far lower in our bank,'€ Surya said recently.

According to Surya, more than 50 percent of ICBC Indonesia'€™s loans are in foreign exchange (forex), in which the renminbi is used by a very small portion of corporate customers consisting of Chinese companies that own subsidiaries in Indonesia.

Surya said the relatively small popularity of the renminbi was prompted by several international and domestic reasons, such as regulations and market conditions.

On the international side, a regulation imposed by People'€™s Bank of China (PBOC) '€” China'€™s central bank '€” required underlying documents for cross-border trade settlement in renminbi, Surya said.

'€œDomestically, the dollar remains the most liquid currency because foreign exchange accounts in Indonesia are mostly in that currency. Dollars are also easy to find in the domestic market,'€ Surya added.

However, Surya said there was a high possibility that the Chinese government would loosen its policy for the renminbi, citing that '€œin July last year, the PBOC opened trade settlements for individuals in the renminbi'€.

Surya said further that the renminbi was rapidly growing as the world'€™s fifth-most widely used payment currency, with its ranking having increased to number 5 as of last year from 13 in January 2013, according to transactions organization SWIFT.

'€œThe Chinese government has started to promote the renminbi as the main currency for trade, investment and forex reserves. Also, China is currently drafting policies to rebalance its economic growth,'€ Surya said.

Data at the Central Statistics Agency (BPS) and ICBC analysis shows that the total value of exports and imports between China and Indonesia stood at US$48 billion as of November last year, or equal to 13.5 percent to Indonesia'€™s total trade of $355 billion.

Economic slowdown in China has been blamed for the decrease of China'€™s share in Indonesia'€™s total trade. Before the economic slowdown, China'€™s trade to Indonesia was $52 billion or 14.3 percent of Indonesia'€™s total trade.

The decline was prompted by a decrease in Indonesia'€™s export value to China to $17.7 billion as of November last year from $22.6 billion by the end of 2013.

On the other hand, Indonesia'€™s imports from China increased to $30 billion as of November last year from $29.8 billion by the end of 2013.

Besides reducing Indonesia'€™s dependency on the dollar and helping narrow the country'€™s current account deficit, the renminbi might offer other advantages for traders and investors, Surya said.

'€œChinese exporters may offer around a 2 to 3 percent discount if Indonesian importers are willing to pay in the renminbi, which is also more stable than the dollar and offers higher yields for investment,'€ Surya said.

In its efforts to boost renminbi usage, Surya said ICBC Indonesia would not set a specific target in the first year, but expected that the portion would double in the future.

As of last year, ICBC Indonesia posted Rp 24 trillion ($1.84 billion) in total loans, an increase of 20 percent from 2013. The bank expects to increase its total loans by 35 percent this year.

'€” JP/Grace D. Amianti

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