Bank Indonesia remains committed to implementing Local Currency Settlement (LCS) in the region. To that end, Bank Indonesia organised LCS socialisation activities on Tuesday, 16th April 2019, at Bank Indonesia targeting Appointed Cross Currency Dealer (ACCD) banks as well as importers/exporters trading with Malaysia and Thailand as potential ACCD bank customers. LCS implementation has a strategic role in supporting transaction efficiency, local currency market development and, ultimately, rupiah exchange rate stability.
In general, bilateral trade transaction settlement with Thailand and Malaysia facilitated by ACCD banks in Indonesia has progressed positively, as reflected by an increase in local currency settlement facilitated by ACCD banks and the increase of features operationalised by such banks. In the first quarter of 2019, total trade transactions through LCS using baht (THB) reached USD13 million (equivalent to Rp185 billion), up from USD7 million (Rp96 billion) in the same period of 2018. Meanwhile, LCS transactions using ringgit (MYR) totalled USD70 million (Rp1 trillion) in the reporting period, increasing significantly from just USD6 million (Rp83 billion) in the same period of 2018.
LCS implementation represents a follow-up action from a Memorandum of Understanding (MOU) signed by Bank Indonesia (BI), Bank Negara Malaysia (BNM) and the Bank of Thailand (BOT) on 23rd December 2016 to expand the use of local currency settlement. This forms part of the efforts introduced by BI, BNM and BOT to reduce dependence on the US dollar, increase local currency market development and implement direct trading, which are expected to enhance market efficiency and maintain exchange rate stability. In addition, the use of LCS in the region has been expanded and strengthened by the signing of commitments between BI, BNM, BOT and Bangko Sentral ng Pilipinas (BSP) at the ASEAN Finance Ministers and Central Bank Governors Meeting (AFMGM) held on 5th April 2019 in Chiang Rai, Thailand.
The MOU facilitated the launch of the LCS operational framework based on Appointed Cross Currency Dealers (ACCD) on 11th December 2017 and appointment of seven ACCD banks in Indonesia (six ACCD banks to facilitate the LCS with Malaysia and five ACCD banks to facilitate the LCS with Thailand), while also facilitating the promulgation of LCS regulations for the Indonesian banking industry, namely Bank Indonesia Regulation (PBI) No. 19/11/PBI/2017 concerning Local Currency Settlement of Bilateral Trade Transactions through Banks, effective from 2nd January 2018.
