Indonesia May Not Always Depend on the US Dollar, Here Is the Proof!

rupiah and us dollar
rupiah and us dollar

The world already knows that the US Dollar is an international currency that influences several other countries, including Indonesia. However, now, Indonesia’s dependence on the US Dollar is decreasing. This is due to the implementation of the policy of using the local currency in trade transactions or Local Currency Settlement (LCS).

This has started happening recently. The real evidence of the fading influence of the US Dollar on Indonesia is clearly shown by two giant banks in the country, namely PT Bank Mandiri (Persero) Tbk. (BMRI) and PT Bank Central Asia Tbk. (BBCA).

Bank Mandiri President Director Darmawan Junaidi said the LCS Arrangement policy was important to manage the stability of the rupiah exchange rate. The implementation of policies in collaboration with 4 partner countries has so far been very supportive of business actors to be able to enter the international market easily and quickly.

“So, foreign trade with this LCS Arrangement, if supported by continuous communication between ACCD (Appointed Cross Currency Dealers) can also support if what other sectors we can develop to develop the business of Indonesian entrepreneurs. Especially with partners in 4 countries that already have LCS Arrangements, “said Darmawan in the G20 Finance Track Side Event entitled ‘Showcasing The Implementation of Local Currency Settlement Framework Between Indonesia and Partner Countries’, Wednesday (16/2/2022).

Furthermore, Darmawan explained that LCS had an impact on increasing the volume of trade and transactions made through banking. The proof is, throughout 202.1 the increase in trading volume using the LCS payment method increased by 30% on an annual basis. Then, the volume of currency trading between Partner Banks (ACCD) which facilitates LCS grew by 171% on an annual basis.

Bank Mandiri believes that the increase in the value of transactions using the LCS method will continue in 2022. Darmawan said LCS has a very important role in optimizing trade between Indonesia and the 4 countries that have implemented this policy, namely China, Japan, Malaysia, and Thailand. In the future, he hopes that the central banks in the 4 countries, together with Bank Indonesia (BI), will continue to optimize the implementation of LCS policies and eliminate underlying transactions with certain values.

On the same occasion, the President Director of BCA Jahja Setiaatmadja said that LCS reduced Indonesia’s dependence on the US dollar because this policy prevented business actors from converting rupiah into US dollars before transacting with their business partners in the destination country.

Jahja gave an example, before there was an LCS policy, Indonesian businessmen who transacted with their partners in Japan had to make a price list in USD. After that, the transaction must be carried out using the rupiah to USD conversion method, then the funds in USD are sent to the destination country, and when they arrive at the partner location, the money is converted back into local currency.

Then, now the value of Indonesia’s trade with the 4 countries that have implemented the LCS has reached 41% of the total trade. This figure is already quite large and can continue to be developed so that in the future more countries will join in implementing this policy.

The implementation of the LCS cooperation is one of BI’s ongoing efforts to encourage the wider use of local currencies in the settlement of trade transactions and direct investment with various partner countries.

According to BI’s explanation, LCS is the settlement of bilateral transactions between two countries carried out in their respective currencies, where the transaction settlements are carried out in the jurisdictions of the respective countries.
With the wider use of the LCS, the rupiah will gain stability. This has a direct impact on reducing dependence on certain currencies in the domestic foreign exchange market