De-dollarization Continues, Cross-Border LCT Transactions Surge by Over 100%

ASEAN Members Agree to Reduce Use of US Dollar (photo: lucas Favre - Unsplash)

In a bid to lessen reliance on the US dollar (de-dollarization), Indonesia is ramping up efforts in Local Currency Transactions (LCT). The latest data reveals a remarkable surge in LCT transactions, surpassing the 100% mark. By the end of March 2024, LCT transactions amounted to US$1.37 billion, equivalent to around Rp22.2 trillion.

“Towards the end of March, we witnessed an outstanding spike in LCT activities, with transactions reaching US$1.37 billion, representing a surge of over 100% compared to the previous period,” highlighted Destry Damayanti, Deputy Senior Governor of Bank Indonesia (BI), during a press briefing for the BI Board of Governors Meeting on Wednesday (24/4/2024).

The number of businesses participating in LCT has also seen an uptick. As of the end of March, there were 3,504 LCT participants, marking an increase of nearly 1,000 participants since the end of 2023.

A noteworthy trend observed by Destry is the significant rise in transactions using local currency, particularly from Japanese exporters and investors. This trend is particularly evident in one of Indonesia’s banks, which has forged a partnership with a Japanese bank.

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“They engage in funding arrangements through LCT, utilizing yen against the rupiah, which is a positive development indicating that not only trade but also investments can be facilitated,” she elaborated.

BI has established LCT cooperation agreements with the monetary authorities of several countries, including Malaysia, Thailand, Japan, China, Singapore, and South Korea.

In a recent development, the Reserve Bank of India (RBI) and Bank Indonesia inked a Memorandum of Understanding (MoU) on March 7, 2024, in Mumbai. The MoU aims to establish a framework for collaboration to promote the use of each country’s local currency in bilateral transactions.

This collaboration framework enables exporters and importers to conduct transactions in local currencies, fostering the growth of foreign exchange markets in both nations, and to lessen reliance on the US dollar or de-dollarization through LCT. Moreover, the adoption of local currencies is expected to reduce transaction costs and enhance transaction settlement efficiency.