Bank Indonesia (BI) and Bank of Korea (BOK) have agreed to use local currency in financial and economic transactions, known as Local Currency Transaction (LCT), with a target implementation in 2024. As a first step, BI and BOK have agreed to develop an Operational Guidelines framework for LCT. This initiative is a follow-up to the signing of a Memorandum of Understanding (MoU) on the use of local currencies by the two central banks in May 2023.
The LCT framework will facilitate cross-border payment transactions in trade areas and is expected to minimize exchange rate and cost risks for businesses and other users. Indonesian and Korean banks will be able to directly quote exchange rates, reducing the risks and costs associated with these transactions and increasing efficiency. This is expected to encourage trade between Indonesia and Korea and deepen the local currency financial markets in both countries.
BI Governor Perry Warjiyo expressed his pride in announcing this joint initiative between the two central banks to promote the use of local currencies through the LCT framework, which is expected to be implemented in 2024. Through the implementation of this LCT cooperation framework, international trade can use direct exchange rate quotations provided by Appointed Cross Currency Dealers (ACCD), providing options for businesses to conduct trade transactions and improving efficiency. The widespread use of local currencies will strengthen macroeconomic stability. This collaboration will strengthen bilateral financial cooperation between Korea and Indonesia.
Bank of Korea Governor Mr. RHEE added that Indonesia, with its large territory and population, plays an important role in the global supply chain for advanced sectors such as batteries and electric vehicles. Moreover, Korean business interests in Indonesia continue to show growth. With this background, the implementation of the LCT framework to promote the use of local currencies in bilateral trade transactions is expected to have a positive impact on economic development through increased bilateral trade and the utilization of the local currencies of both countries.
Based on Indonesia’s successful experience in implementing the LCT framework with several countries in recent years, it is expected that the LCT framework between Korea and Indonesia can also be successfully established and implemented. Both central banks are committed to making their best efforts to achieve this goal.
Furthermore, the two central banks also commit to implementing the LCT cooperation framework to strengthen cross-border trade, enhance regional financial market stability, and deepen the local currency markets in both countries. This initiative is also in line with the efforts of several countries in the region to facilitate wider use of local currencies.
Editor: Galih Pratama