Bank Indonesia (BI) and the People’s Bank of China (PBOC) signed on Wednesday a memorandum of understanding (MoU) to establish a framework promoting the use of local currencies for trade and direct investment.
With the local currency settlement (LCS) agreement signed by BI Governor Perry Warjiyo and PBOC Governor Yi Gang, both central banks agreed to promote the direct exchange rate quotation and interbank trade for the Chinese yuan and the Indonesian rupiah.
Going forward, the two central banks will strengthen the cooperation through regular information sharing and discussion.
“This collaboration marks a key milestone in strengthening bilateral financial cooperation between China and Indonesia,” reads a BI statement issued on Wednesday.
“The authorities believe that it will positively contribute to encouraging the use of local currencies for settlement of trade and direct investment between the two countries.”
Bank Indonesia has signed similar agreements with other central banks, namely Bank of Thailand and Bank Negara Malaysia, as well as with the Japanese Finance Ministry.
The importance of LCS increases as trade between Asian countries grows, according to an earlier publication from BI. Trading without having to go through the exchange rate of the United States dollar can result in a more efficient price.
China is Indonesia’s largest trading partner. Indonesia’s non-oil and gas exports to China reached US$17.81 billion with imports amounting to $24.72 billion in the January–August period, according to Statistics Indonesia (BPS) data.