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Indonesia, China implement local currency settlement
Bank Indonesia and the People’s Bank of China have implemented a mechanism to rely more on their own currencies and less on the dollar in bilateral trade and investment.
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People leave a Bank Indonesia (BI) office building in Central Jakarta on Feb. 26, 2020. (JP/Dhoni Setiawan)
I
ndonesia and China implemented a local currency settlement (LCS) agreement on Monday to make trade and direct investment between the two countries more efficient.
The move comes nearly a year after Bank Indonesia (BI) and the People’s Bank of China (PBOC) inked a memorandum of understanding on the matter.
BI reported on Monday that the mechanism was expected to benefit businesses as it would reduce transaction costs, provide alternative financing in local currencies for trade and direct investment, create more options for hedging and diversify currency exposure in cross-border transactions.
“Expanding the use of the LCS is expected to support the rupiah’s stability by reducing dependence on certain currencies in the domestic foreign exchange market,” BI reported in a press release on Monday.
The inception of the rupiah-yuan facility follows a similar framework put in place with Japan, Malaysia and Thailand as Indonesia seeks to reduce its dependence on the US dollar, which currently is used for most of the archipelago’s international trade.
Read also: BI working with counterparts to reduce use of dollar
China is Indonesia’s largest trading partner. In July, the country’s exports to China rose by 36.4 percent year-on-year (yoy) to $3.71 billion, and imports were up nearly 37 percent at $4.41 billion, Statistics Indonesia (BPS) data show.
