Indonesia: BI Issues Local Currency Settlement Rule

• Oct 17, 2017

TEMPO.CO, Jakarta – Bank Indonesia (BI) has issued a regulation on the settlement of bilateral trade transactions using local currency settlement (LCS), such as rupiah.

BI communication director Arbonas Hutabarat said via the central bank’s website that the regulation aims to support the rupiah stability by reducing dependence on the US dollar when settling bilateral trade transactions.

The regulation authorizes BI and partner countries to appoint banks in Indonesia as cross currency dealers (ACCD), which may accept transactions by Indonesian entrepreneurs importing goods from Malaysia or Thailand. The importer will be able to pay directly using Malaysian ringgit or the Thailand baht via the ACCD bank without converting it to US dollars first.

The rule also allows Indonesian exporters wishing to use the LCS mechanism to receive payments in rupiah, ringgit or baht through the designated ACCD bank.

Arbonas said the rule is issued as a follow-up to the signing of a MoU between BI, the Bank of Thailand and Bank Negara Malaysia on December 23, 2016 on LCS partnership with both countries. Under the agreement, the settlement of international trade between the three countries can be done using rupiah, ringgit, and baht.

According to Arbonas, this regulation reduces the cost of foreign exchange transactions against the rupiah due to direct quotation. He said that the method can extend business actors’ access to pay their dues using local currencies. The regulation is also expected to encourage the use of regional currencies in trade and broaden access for economic actors.

Source: https://en.tempo.co/read/news/2017/10/17/056912352/BI-Issues-Local-Currency-Settlement-Rule