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BI, BOK sign deal on local currency settlement
The central banks of Indonesia and Korea have signed a cooperation agreement on local currency settlement (LCS) to allow the use of the rupiah and the won in bilateral transactions.
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The logo of Bank Indonesia adorns its Jakarta headquarters, as pictured on Jan. 17, 2019. (Reuters/Willy Kurniawan)
B
ank Indonesia (BI) and the Bank of Korea (BOK) have signed an agreement on a cooperation framework for local currency settlement (LCS) that will allow the two countries to conduct bilateral transactions in their own currencies, instead of the common practice of using the United States dollar.
According to a press release from BI published on Tuesday, BI Governor Perry Warjiyo and BOK Governor Rhee Chang-yong inked the memorandum of understanding (MoU) on the sidelines of the 26th ASEAN+3 Finance Ministers’ and Central Bank Governors’ Meeting (AFMGM+3), held on the same day in Incheon.
The cooperation will “promote the use of local currencies in bilateral transactions” between Indonesia and South Korea, the statement read. It added that “the cooperation can help [businesses] reduce their transaction costs and exposure to exchange rate risks of conducting bilateral transactions”.
The LCS cooperation will also enable direct exchange rate quotations between the Korean won and the Indonesian rupiah in current account transactions, direct investments and other economic or financial cross-border deals.
Read also: Bank Indonesia expects 10% rise in annual LCS transactions
“The authorities believe that more extensive use of local currencies in bilateral transactions will ultimately contribute to promoting trade between Indonesia and Korea, as well as financial market deepening in local currencies in the two countries,” the statement said.
The new cooperation framework adds to the portfolio of Indonesia’s central bank, which has signed similar agreements with Bank Negara Malaysia, the Bank of Thailand, Japan’s Ministry of Finance, the People’s Bank of China and the Monetary Authority of Singapore.
