Jakarta, CNBC Indonesia – Bank Indonesia (BI) has entered into an agreement with several central banks in several countries regarding the use of local currency or local currency settlement (LCS) in trade and investment transactions.
These countries, including Malaysia, Japan, Thailand, and China, have also agreed on the same thing to leave the US dollar.
With this LCS, the two countries that work together can reduce dependence on the United States (US) dollar. So that the two trading partners do not need to exchange US dollars first if they want to carry out trade and investment transactions.
Transactions through this LCS include the use of direct exchange rate quotes as well as interbank trading for the country’s currency and rupiah. In addition, there is also information sharing and regular discussions between authorities.
The LCS agreement between Indonesia and Japan, Thailand and Malaysia has already been implemented. There are many entrepreneurs who take advantage of this. The latest is with China.
China is Indonesia’s main trading partner. In 6 months of this year, non-oil exports to China reached US$ 21.2 billion and imports US$ 25.2 billion. Both countries have completed the technical mechanism for implementing the SCS.
“The technicalities for appointing banks have been completed, as well as the technical mechanisms,” said BI Governor Perry Warjiyo in a press conference to announce the results of the July Edition of the Board of Governors’ Meeting (RDG).
In the near future, the business world will be able to take advantage of these facilities. So that the purpose of the LCS can be achieved.
At a media briefing on June 25, 2021, the Head of the BI Financial Market Development Department, Donny Hutabarat said, Indonesia is one of the countries that is quite active and can become a regional currency leader.
“The development of LCS needs to be socialized, internalized and needs to be approached again to people who are very happy to use dollars. So that they can switch,” explained Donny.
For information, BI in its official release explained that the LCS between Indonesia and Malaysia was expanded, from which initially only covered trade transactions, now it is expanded to include underlying LCS transactions by adding direct investment and income transfers (including remittances).
Now both BI and BNM also include easing foreign exchange transaction rules, among others, related to the expansion of hedging instruments and an increase in the threshold value for transactions without underlying documents up to US$ 200,000 per transaction.
“The strengthening of the LCS framework in the Rupiah-Ringgit will take effect on August 2, 2021,” said BI in its official broadcast, Monday (2/8/2021).
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