Starting September 30, Indonesia-Korea transactions will use Rupiah and Won
Bank Indonesia (BI), the Bank of Korea (BOK), and the Ministry of Finance of Korea have reached an agreement on a framework for Local Currency Transactions (LCT) aimed at promoting the use of local currencies, specifically the Indonesian Rupiah (IDR) and the Korean Won (KRW), for trade transactions between Indonesia and South Korea. This agreement was signed on Friday, August 30, 2024.
According to a written statement from BI released over the weekend, this initiative follows the Memorandum of Understanding (MoU) signed by BI and BOK in May 2023, along with the operational framework agreement established in June 2024.
"The LCT framework between Indonesia and South Korea will be effectively implemented starting September 30, 2024," the statement from BI indicated. This means that from September 30, 2024, trade transactions between the two countries can utilize the Rupiah and Won, eliminating the necessity of using the US dollar.
The implementation of the LCT framework between Indonesia and South Korea represents a significant achievement in the bilateral financial cooperation between the two nations.
The LCT framework will enhance the interconnection of banks designated as Appointed Cross Currency Dealers (ACCD) to facilitate ongoing transactions between the countries using local currencies.
This collaboration will also promote direct exchange rate quotations between the IDR and KRW, as well as relax necessary regulations to encourage the utilization of LCT.
"Moving forward, the implementation of the LCT framework will foster an increase in bilateral trade transactions, reduce exposure to exchange rate risks, and enhance transaction efficiency," the BI statement noted.
BI and BOK have designated the following banks as ACCD in Indonesia and South Korea, which will facilitate the operationalization of the Rupiah-Won LCT framework:
ACCD Banks in Indonesia:
- PT Bank Mandiri (Persero) Tbk
- PT Bank Negara Indonesia (Persero) Tbk
- PT Bank Rakyat Indonesia (Persero) Tbk
- PT Bank Central Asia Tbk
- PT Bank CIMB Niaga Tbk
- PT Bank BTPN Tbk
- PT Bank Maybank Indonesia Tbk
- PT Bank OCBC NISP Tbk
- PT Bank DBS Indonesia
- PT Bank Woori Saudara Indonesia 1906 Tbk
- PT Bank KEB Hana Indonesia
- PT Bank Shinhan Indonesia
- PT Bank IBK Indonesia
- PT Bank KB Bukopin Tbk
ACC Banks in South Korea:
- Woori Bank
- KEB Hana Bank Seoul
- Shinhan Bank Seoul
- Industrial Bank of Korea
- Kookmin Bank
- SMBC Seoul
- BNI Seoul Branch
Total BI has established LCT agreements with eight countries, namely, Bank Negara Malaysia, Bank of Thailand, Japan Ministry of Finance, People’s Bank of China, Monetary Authority of Singapore, Reserve Bank of India (RBI), and the Central Bank of the UAE, in addition to the Bank of Korea.
The LCT agreements with Thailand, Malaysia, Japan, China, and Korea are set to take effect starting September 30, 2024. As of June 2024, the value of LCT transactions with these four countries has reached USD 4.7 billion, equivalent to approximately IDR 72 trillion.
The number of businesses utilizing LCT has also seen a significant increase. As of May 2024, there are 4,386 businesses engaged, which is double the figure from the previous year, where only 2,602 businesses were involved.
With the growing utilization of LCT in cross-border transactions, supported by an influx of foreign capital, BI anticipates that the stability of the rupiah exchange rate can be better maintained.
Furthermore, LCT enhances the efficiency of international transactions in terms of cost and speed, while also promoting the development of foreign exchange markets in the participating countries.
