APSN Banner

Indonesia inks local currency transaction pact with Malaysia, Thailand

Jakarta Globe - August 25, 2023

Jayanty Nada Shofa, Jakarta – The Indonesian central bank on Friday signed local currency transaction pacts with its Malaysian and Thai counterparts, respectively, in a bid to reduce reliance on American dollars.

The freshly inked deal is an expansion of the local currency settlement, namely the use of the countries' respective currencies for trade and direct investment. For instance, an Indonesian importer may pay in rupiah or baht when importing goods from Thailand. In other words, businesses do not need to use American dollars as an intermediary.

Indonesia has previously established local currency settlement cooperation with ASEAN member states Thailand and Malaysia. According to Bank Indonesia Governor Perry Warjiyo, Jakarta and the said two countries want this use of local currencies to go beyond trade and investment; thus the memorandum of understanding (MoU) signing.As part of the new MoU, Indonesia – together with Malaysia and Thailand– have agreed on facilitating more efficient cross-border payments. Perry said that the three countries would also use local currencies for financial asset transactions, including government bonds and equities.

"Local currency transaction is an expansion of the local currency settlement," Perry told reporters shortly after the signing ceremony.

"So we use local currencies bilaterally, not only for trade and investment. But also for cross-border payments. [The local currency cooperation] will also include the transactions in financial assets," Perry added.

Perry revealed that Indonesia-Malaysia's trade and investment settled in ringgit or rupiah amounted to $1.5 billion equivalent per month. Thailand-Indonesia's monthly local currency trade and investment settlements already totaled almost $600 million.

Abdul Rasheed Ghaffour, the governor of the Malaysian Central Bank, also commented on the local currency transaction agreement.

"The signing of the MoU today represents all commitments to further accelerate efforts to put in place the necessary frameworks and also market infrastructure to promote settlements in local currencies. Settlements need to be easy, safe, and cost-efficient for businesses as well as individuals," Bank Negara Malaysia's Ghaffour told the press.

Government data shows Indonesia-Thailand trade already amounted to $19.2 billion last year. Indonesia's bilateral trade with close neighbor Malaysia reached $27.9 billion in 2022.

Source: https://jakartaglobe.id/business/indonesia-inks-local-currency-transaction-pact-with-malaysia-thailan