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BI working with counterparts to reduce use of dollar
Bank Indonesia is working with other central banks and governments in the ASEAN region and China to reduce reliance on the US dollar for cross-border trade and investment.
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People leave the Bank Indonesia (BI) building in Central Jakarta on Feb. 26, 2020. The central bank is working with counterparts and governments in the region to reduce reliance on the US dollar for cross-border trade and investment. (JP/Dhoni Setiawan)
B
ank Indonesia (BI) has strengthened a local-currency settlement framework with authorities in Japan and Malaysia to reduce the dominance of the United States dollar and make the rupiah less volatile to global financial shocks.
Within the framework, BI and Bank Negara Malaysia expanded earlier this month the types of transactions covered in the framework to include not only trade but also direct investment and remittances.
The US dollar is still used for most of Indonesia’s trade with other countries, according to Doddy Zulverdi, executive director of BI’s international department. But local-currency trade settlements are on the rise.
“Our rupiah is too vulnerable to what happens in the global market, especially regarding the US dollar,” Doddy said in an online press briefing on Friday. “Of course, a highly volatile rupiah can have a negative impact on price stability [or] inflation and business balance sheets or finances.”
The rupiah was trading at Rp 14,353 to the US dollar on Monday and has lost 2.16 percent since the start of the year, Thomson Reuters data show.
Read also: Rupiah sliding since Fed June meeting
Last year, local-currency settlements accounted for 4.1 percent of the trade between Indonesia and Malaysia. While that is only a small share of the total, it marks a nearly threefold increase from 2018, when the two countries implemented the framework.
