Aditya Hadi, Jakarta – Finance Minister Sri Mulyani Indrawati and her Indian counterpart, Nirmala Sitharaman, discussed a proposal to settle bilateral transactions with local currencies and link the fast payment systems of both countries, according to a report from Bloomberg.
According to Bloomberg, the talks have reached an advanced stage and an announcement could come once officials complete formalities. However, Bank Indonesia, the Finance Ministry in Jakarta and India's Finance Ministry did not respond to Bloomberg's request for comment.
India is one of Indonesia's top non-oil and gas export destinations with a US$9.4 billion transaction value during the first half of this year, which is dominated by mineral fuel, crude palm oil (CPO) and steel commodities. Meanwhile, the value of Indonesia's non-oil and gas imports during the same period is about $3.3 billion.
On the other hand, Indonesia and other countries in Southeast Asia have declared a collective effort to use their own currencies more often in intra-regional trade.
The deal, which was announced at the ASEAN Summit in May, also encouraged country members to settle transactions in local currencies rather than with the US dollar, in order to insulate the region from external volatility.
Among ASEAN countries, Indonesia, Thailand, Malaysia and the Philippines have been developing their capacity for local currency settlement (LCS) since 2017.
The region is also looking to improve its regional payment connectivity through initiatives such as quick response (QR) standards between Indonesia and Malaysia, which allow citizens of both countries to use QR codes to make payments in their local currency while in the other country.
"This is in line with the purpose of ASEAN centrality, so that ASEAN can be much stronger and self-reliant," President Joko "Jokowi" Widodo said of the currency policy recommendation in remarks on May 11.
Outside the region, Indonesia's central bank has also signed an LCS agreement with the Bank of Korea. In a statement, Bank Indonesia (BI) said that the cooperation will "promote the use of local currencies in bilateral transactions" between Indonesia and South Korea.
BI, which also has similar agreements with Japan's Ministry of Finance and the People's Bank of China, added that "the cooperation can help [businesses] reduce their transaction costs and exposure to the exchange rate risks of conducting bilateral transactions".
The LCS deals that BI has signed with monetary authorities in other countries have resulted in a "positive LCS growth trend" in the financial market, with transactions reaching the equivalent of $868 million in the first quarter of last year, according to a BI press statement released on May 27, 2022.