Bank Indonesia, the country's central bank, released a regulation on Monday (16/10) that will allow banks to facilitate Indonesian traders conducting transactions with foreign counterparts in their respective currencies instead of the US dollar to reduce a reliance on the greenback and mitigate impacts from a volatile global market.
The regulation followed a memorandum of understanding between Bank Indonesia, Bank Negara Malaysia and Bank of Thailand that was signed last December and which established a framework to promote settlements of bilateral trade and direct investment in the Malaysian ringgit and the Thai baht.
At the time, all three banks said the agreements would pave the way for wider use of local currencies in the Asean Economic Community.
"The new regulation is also hoped to reduce the cost of foreign exchange transactions on the rupiah with a direct quotation," said Arbonas Hutabara, director of the communications department at Bank Indonesia.
Previously, bilateral trade between Indonesian traders and foreign associates used the US dollar, which added unnecessary costs to each transaction.
According to Arbonas, direct quotation between the rupiah and other currencies can develop foreign exchange markets in the region and make it easier for businesses to pay their dues in local currencies.
The regulation offers a mechanism to conduct local currency settlement involving Indonesian lenders. Bank Indonesia and its counterparts — central banks or other monetary authorities in partner countries — have the power to appoint Indonesian commercial banks as the Bank Appointed Cross Currency Dealer (ACCD) that can process spot transactions, forward and swap with ACCD banks in other countries, importers, exporters, Indonesian non-bank ACCD or foreign non-bank ACCD.
Before becoming an ACCD, a bank will be assessed on its health, ability to facilitate trades, ability to conduct business relationships with other banks in partner countries and the size of its office network in the home country.
Once an Indonesian bank becomes an ACCD, it can create a special rupiah-denominated account for the foreign ACCD bank as well as open a local currency-denominated account at the foreign ACCD.
The bank can also open a special foreign-denominated account for Indonesian exporters or importers. Once the account has been opened, ACCD banks can offer to finance trades and make fund transfers and investments.
The regulation will come into force on Jan. 2, 2018.
Source: Jakarta Globe