September 8th, 2021 by Arash Digital
Online Seminar of Bank Indonesia Policy on Indonesia-China Local Currency Settlement (8/9/2021)
Director of Arash Digital, Herlina Kalla, attended a seminar on policy of Bank Indonesia on Indonesia-China Local Currency Settlement (LCS), which has been officially implemented since September 6, 2021. LCS is the settlement of transactions between two countries carried out in one of the country's territories using the original currency.
LCS cooperation has been stated in a Memorandum of Understanding (MoU) signed by the Governor of Bank Indonesia (BI), Perry Warjiyo, and the Governor of the People's Bank of Tiongkok (PBC), Yi Gang on September 30, 2020. The MoU comprised of the LCS cooperation structure, namely, the use of direct exchange rate quotations and relaxation of certain regulations in CNY/IDR transactions. The success of this MoU cannot be separated from the collaboration between the Indonesian Embassy in China and the BI Representative Office in Beijing.
Executive Director, Head of the BI Financial Market Development Department, Donny Hutabarat, said, "The collaboration between BI and PBC is a continuous effort to encourage wider use of local currencies in the settlement of trade transactions and direct investment from partner countries".
The existence of the CNY/IDR LCS in trade transactions is expected to support the stability of Rupiah as a currency through its impact on dependence with the US Dollar (USD). From the LCS agreement, the two central banks set several banks in their respective countries as Appointed Cross Currency Dealers (ACCD), namely banks that are considered to have a good level of resilience and health, are experienced in facilitating trade/investment transactions and possess the capacity to provide various services, finance, as well as having good cooperative relationships with banks in partner countries.
Indonesia-China LCS also has an impact on Cross-border Payment services for both countries, where bank settlements in Indonesia as well as in China that previously had to use cross-currency transaction can now use direct quotation mechanism from CNY to IDR or in reverse. This benefit is expected to be realized in the near future.
In addition to collaborating with China, BI has previously cooperated using LCS framework with three other countries, namely Japan, Malaysia, and Thailand.