Countries worldwide are increasingly seeking to reduce their reliance on the US Dollar in international transactions, and Indonesia is no exception. Towards financial independence, Indonesia is set to implement Local Currency Transactions (LCT) with South Korea. This strategic shift, aimed at minimizing the use of the US Dollar, will officially commence on September 30, 2024.
This landmark decision follows a series of agreements between Bank Indonesia (BI), the Bank of Korea (BOK), and the Korean Ministry of Finance. These institutions have worked collaboratively to establish a framework for LCT, building on the Memorandum of Understanding (MoU) signed in May 2023 and further operational agreements made in June 2024.
“The LCT cooperation is designed to promote the use of local currencies, specifically the Rupiah and the Won, in trade transactions between Indonesia and South Korea. The LCT framework between the two countries will be effectively implemented from September 30, 2024,” stated Bank Indonesia in an official release on Friday, August 30, 2024.
This cooperation represents a critical milestone in the bilateral financial relationship between Indonesia and South Korea. The LCT framework is expected to strengthen the connectivity between Appointed Cross Currency Dealer (ACCD) banks, thereby facilitating seamless cross-border transactions using the Rupiah and the Won.
Bank Indonesia highlighted that this initiative would also encourage direct currency quotations between the Indonesian Rupiah (IDR) and the South Korean Won (KRW). Additionally, it will involve regulatory adjustments aimed at promoting the use of local currencies in bilateral trade.
“Looking ahead, the implementation of the LCT framework will boost bilateral trade transactions, reduce exposure to exchange rate risks, and enhance transaction efficiency,” the central bank added.
To operationalize this framework, both Bank Indonesia and the Bank of Korea have appointed specific banks to act as ACCD banks. These banks will play a crucial role in facilitating the use of local currencies for trade between the two nations.
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In Indonesia, the following banks have been designated as ACCD banks for the dedollarization initiative with South Korea:
- 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 Tbk
- PT Bank KB Bukopin Tbk
In South Korea, the following banks have been appointed as ACCD banks:
- Woori Bank
- KEB Hana Bank Seoul
- Shinhan Bank Seoul
- Industrial Bank of Korea
- Kookmin Bank
- SMBC Seoul
- BNI Seoul Branch
This cooperation marks a new chapter in the financial relations between Indonesia and South Korea, setting the stage for a more resilient and efficient bilateral trade environment, free from overreliance on the US Dollar.
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