Bye Dollars! BI and the Central Bank of Korea Agree to Use Local Currency for Transactions

Jakarta –

Bank Indonesia (BI) and Bank of Korea (BOK) agreed on the use of local currency in financial and economic transactions (Local Currency Transaction/LCT). Thus, both countries no longer need to convert to United States (US) dollars.

This agreement was made on the sidelines of the BI-BOK High Level Meeting today, Sunday (10/12/2023). It is targeted that this policy will be implemented in 2024. As a first step in implementation, BI and BOK agreed to develop an LCT framework in an Operational Guidelines.

The Governor of Bank Indonesia, Perry Warjiyo, said that through the implementation of the LCT cooperation framework, trade between countries can use direct exchange rate quotations provided by Appointed Cross Currency Dealer (ACCD) banks.

“We are proud to announce a joint initiative between the two central banks to encourage the use of local currency through the LCT framework which is expected to be implemented in 2024,” said Perry, in a written statement, Sunday (10/12/2023).

Perry explained that this step would provide options for the business world in carrying out trade transactions and increase transaction efficiency. Widespread use of local currencies will strengthen macroeconomic stability.

“This collaboration will strengthen bilateral financial cooperation between Korea and Indonesia,” he said.

This initiative in preparing the LCT framework is a follow-up to the signing of a Memorandum of Understanding (MoU) on cooperation on the use of local currency between the two central banks which was agreed in May 2023.

In its implementation, the LCT framework will facilitate the settlement of cross-border payment transactions in the trade area and is expected to minimize exchange rate risk exposure and costs for business actors and other users.

Banks in Indonesia and Korea can quote exchange rates directly so that exchange rate risks and costs arising from these transactions can be reduced, as well as increasing efficiency which is expected to encourage trade transactions between Indonesia and Korea. This can also deepen financial markets in local currencies in both countries.

Meanwhile, Bank of Korea Governor Rhee Chang Yong said, Indonesia, with its large territory and population, plays an important role in the global supply chain for advanced sectors such as batteries and electric vehicles. Moreover, Korean business interest in Indonesia also continues to show an increase.

“Against this background, the implementation of the LCT framework which encourages the use of local currencies in bilateral trade transactions is expected to have a positive impact on economic development through increasing bilateral trade and the use of the local currencies of the two countries,” he said.

Rhee said that Indonesia has had successful experience in implementing the LCT framework with a number of countries in recent years. He hopes that the LCT framework between Korea and Indonesia will also be successful.

“It is hoped that the LCT framework between Korea and Indonesia will also be successfully established and implemented. To achieve this goal, the two central banks are committed to providing their best efforts,” he said.

The two central banks are also committed to implementing the LCT cooperation framework in order to strengthen cross-border trade, increase regional financial market stability, and deepen local currency markets in the two countries. This initiative is also in line with financial integration efforts of a number of countries in the region to facilitate wider use of local currencies.

(shc/that)