Jakarta. Bank Indonesia, the country's central bank, is optimistic that the value of trade and investment transactions settled in local currency will increase by 10 percent this year, adding a layer of cushion against future global shocks.
Bank Indonesia Governor Perry Warjiyo said on Wednesday that the value of local currency settlement transactions has been increasing in the past two years. The settlements reached $2.53 billion in value last year, more than doubled the 2020's $797 million.
"This year, we are targeting an increase of at least 10 percent," Perry said in the Side Event of the G20 Indonesia Presidency on Wednesday.
The central bank data showed that international trade accounted for more than 35 percent of the local currency settlements last year, followed by remittance (14 percent) and direct investment (1 percent). The other 50 percent consisted of interbank transactions.
Two countries with a local currency settlement deal can settle cross-border transactions using their respective currency in their respective jurisdiction. For example, a transaction between parties in Indonesia and Japan using the Japanese yen can be settled in Japan. If the transaction uses rupiah, it will be settled in Indonesia.
Perry said the local currency settlement could reduce dependence on the dollar, especially for international trade transactions. He said the use of the dollar in trade could cause regional economic risks to be more vulnerable to global shocks. As a result, it will threaten macroeconomic and financial system stability.
"The use of local currency to facilitate trade and investment will support economic stability to support economic growth," Perry said.
Indonesia has had bilateral local currency settlement agreements with Malaysia, Thailand, China, and Japan since 2018 and planned to invite more countries to sign similar agreements.
"We are expanding by dissemination information about this local currency settlement facility in countries that already have an agreement with us. Also, we will even expand to other countries," Perry said.
Bank Indonesia was also developing the domestic non-deliverable forward (DNDF), a hedging instrument in local currencies, to protect local currency transactions further.