After establishing the LCS with Bank Negara Malaysia and Bank of Thailand in 2016, as well as Japan's Ministry of Finance in 2020, BI launched the most recent LCS framework cooperation with the People’s Bank of China. The options are now ample, consisting of the Indonesian rupiah, Malaysian ringgit, Thailand baht, Japanese yen and Chinese yuan, depending on which country is involved in the transaction.

The LCS initiative is basically an effort to avoid the potential drawbacks of too much dependency on the US dollars. Studies show that 90 percent or equal to US$269 billion of overseas Indonesian transactions were made using US dollars in 2020. In the meantime, there was less than 9 percent of Indonesia-US trading on goods and services. This data shows that we are still entangled with the influential power of the US dollar for less obvious reasons.

The US dollar is indeed the global reserve currency. This began long ago when the Bretton Woods arrangement of 1944 selected the American proposal of Harry Dexter White instead of his competitor John Maynard Keynes of Great Britain. The US had a major win over the global political economy, which has carried over through the decades, until today.

Charles de Gaulle of France back then blatantly called out the “exorbitant privilege” of the US through its currency power. Then in 1971, then-US president Richard Nixon suspended the US dollar convertibility into gold for inward economic reasons. The gold monetary standard was effectively abandoned and thereby strengthened the position of the US dollar as the global reserve currency.

Had Keynes won the battle of Bretton Woods, we might be living a different story. Keynes proposed a comprehensive design of global financial architecture consisting of an international clearing union (ICU) and international currency denomination of the “bancor”. The bancor embeds the feature of adjustment burden for debtor countries and is supposed to settle international balances. Bancor might seem similar to the International Monetary Fund's Special Drawing Rights (SDRs) at glance, but it is functionally different. All in all, the die was cast.

Anchoring from the great wisdom of Keynes, Robert Hockett of the Cornell Law School proposed the merger of the IMF and the Bank for International Settlements to become equivalent with the Keynesian ICU. But redesigning the global financial architecture requires a political consensus. While the political constellation should be built upon, BI offers a more regional-based and viable solution through the LCS.

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