Indonesia Continues 'De-dollarization'

The Indonesia's trade transactions and investment with the four countries no longer use the US dollar, but use their respective local currencies.

KOMPAS/TOTOK WIJAYANTO (TOK)

Bank Indonesia Governor Perry Warjiyo (front left) prepares to lead a press conference on the results of the Bank Indonesia Board of Governors Meeting accompanied by deputies, (from left) Destry Damayanti, Juda Agung, Doni P Joewono, and Aida S Budiman at the BI Building, Jakarta, Tuesday ( 18/4/2023). BI continues to maintain its benchmark interest rate at 5.75 percent.

JAKARTA, KOMPAS —Indonesia is continuing its efforts to reduce its dependence on the United States dollar or a process of "de-dollarization". This is reflected in Bank Indonesia's plan to cooperate with the Central Bank of South Korea to realize trade transaction settlement and investment using the local currencies of the two countries in May.

Bank Indonesia (BI) Governor Perry Warjiyo said Indonesia had initiated diversification in the use of currencies other than the US dollar to settle trade transactions and investment. Since 2017, Indonesia has collaborated in settlement of trade transactions and investment (local currency transactions/LCT) using local currencies with Malaysia, Thailand, Japan and China.

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This means that Indonesia's trade transactions and investment with the four countries no longer use the US dollar, but use their respective local currencies. “This is de-dollarization. We diversify the use of currencies other than US dollars for settlement of transactions between countries. Indonesia has initiated and implemented it," Perry said on Tuesday (18/4/2023).

Apart from South Korea, Perry added, his side would also increase the number of countries in this LCT cooperation with countries in Southeast Asia. Not only LCT cooperation, the plan also includes among other projects, the use of Quick Response Indonesian Standard (QRIS) cross-border payment system and fast payments between Southeast Asian countries. This is part of the ASEAN Payment Connectivity development agreement.

KOMPAS/TOTOK WIJAYANTO

An employee of a company shows bank notes for the year 2022 issue which he successfully exchanged at a bank in Palmerah, Jakarta, Monday (3/4/2023).

BI senior deputy governor Destry Damayanti added that the business world welcomed the LCT initiative. This was reflected in the 2,014 business actors already involved in LCT, which has increased rapidly from last year when it stood at 1,740. In January and February, transactions of the four countries cooperating with Indonesia, namely Malaysia, Thailand, Japan and China, were recorded using local currency equivalent to $957 million.This means, Destry added, on average in a month there was a reduction of US dollar transactions equivalent to approximately $480 million.

This figure is an increase compared with the average in 2022 which was about $350 million per month. "If we add [transactions] from South Korea, the LCT can really help [in] reducing our dependence on the dollar," said Destry.Contacted separately, Bank Mandiri chief economist Andry Asmoro explained, the phenomenon of "de-dollarization" that was occurring in some countries was a natural shift.

When there is a price shock with the currency, the economy of each country is also affected.

So far, the US dollar currency has been used in almost every transaction around the world. When there is a price shock with the currency, the economy of each country is also affected.

The phenomenon of "de-dolarization" is also being carried out by other countries. Recently there has been much talk of efforts by Brazil, Russia, India, China and South Africa (BRICS) to start using their own currency in trade.Deputy dean of the Prasetiya Mulya School of Economics and Business Adrian Teja believes that the US dollar as the main currency in international trade will still last until the next decade, but its role will continue to decline. (Z15)

This article was translated by Kurnia Siswo.