- Bank Indonesia proposes to employ a two-way payment system using national currencies
According to Tempo.co, Indonesia’s news agency article published on October 14, 2022, Bank Indonesia (BI) encourages export-import actors to make more use of Local Currency Settlement (LCS). The LCS is an initiative to reduce dependence on hard currencies, especially the US dollar, by encouraging the use of local currencies in trade and investment transactions.
Local currency settlements also increase the resilience of Indonesia's financial markets.
Nugroho Joko Prastowo, head BI Solo Representative Office, said that this whole time many import-export transactions are done in foreign currencies, mostly US dollars.
"Based on data, 90 percent of export-import settlements are in US dollars, when in fact the value of Indonesia's direct exports to the US is only 10 percent, and the value of US imports is only 5 percent," he told reporters after opening a dialogue on 'Utilizing LCS to Increase Export-Import Efficiency of the Greater Solo Region' at The Sunan Hotel, October 13.
When transacting in foreign currencies, Joko said, there is a conversion fee. When using US dollars, the conversion fee is doubled. For instance, when purchasing something from Japan in Japanese yen, the rupiah is converted to US dollar first before converted again to yen.
When the payment transactions are carried out bilaterally, Joko said, Indonesian exporters and importers can directly make payments to buying/selling country using its currency.
According to Joko, the difference in value between the foreign currencies against the rupiah can reach millions of dollars in export-import transactions. If the LCS is applied bilaterally, it will be very beneficial for the import-export players.
He said that currently four countries have agreed to utilize LCS with Indonesia: China, Japan, Thailand and Malaysia. "Singapore has been plotted, although it has not been fully implemented, and soon the Philippines. Currently, the implementation of LCS with Saudi Arabia is also being explored," he said.
Joko said that the central bank will continue to encourage entrepreneurs, especially export-import actors, to take advantage of the LCS. Nationwide, efforts to use local currencies in international trade and bilateral negotiations have been initiated since 2017.
To support the operation of local currency frameworks or LCS, several banks in Indonesia have been selected as the Appointed Cross Currency Dealers (ACCD).
