Jakarta. Bank Indonesia (BI) continues its efforts to reduce reliance on the US dollar by forming a strategic partnership with the Bank of Korea (BOK) and South Korea's Ministry of Finance. The parties have agreed on a cooperation framework to implement the Local Currency Transaction (LCT) between Indonesia and South Korea, aimed at promoting the use of the Indonesian Rupiah and South Korean Won in bilateral trade. This agreement was finalized on Friday.

This collaboration follows a Memorandum of Understanding (MoU) signed in May 2023 and the subsequent operational framework agreement reached in June 2024. The LCT framework between Indonesia and South Korea is set to be effectively implemented starting Sept. 30.

“The implementation of the LCT framework between Indonesia and South Korea represents a significant milestone in the bilateral financial cooperation between our two countries,” said Erwin Haryono, Head of BI’s Communications Department, in an official statement released on Friday.

The LCT framework is designed to enhance the connectivity of appointed cross-currency dealer (ACCD) banks, facilitating cross-border transactions using local currencies. The cooperation also includes direct currency exchange quotations between IDR and KRW, along with regulatory adjustments necessary to encourage LCT utilization.

“Looking ahead, the implementation of the LCT framework is expected to increase bilateral trade transactions, reduce foreign exchange risk exposure, and improve transaction efficiency,” Erwin added.

BI and BOK have designated several banks as ACCD banks in Indonesia and South Korea to support the operation of the Rupiah-Won LCT framework:

ACCD Banks in Indonesia:

• Bank Mandiri 
• Bank Negara Indonesia 
• Bank Rakyat Indonesia 
• Bank Central Asia 
• Bank CIMB Niaga 
• Bank BTPN 
• Bank Maybank Indonesia 
• Bank OCBC NISP 
• Bank DBS Indonesia
• Bank Woori Saudara Indonesia 1906 
• Bank KEB Hana Indonesia
• Bank Shinhan Indonesia
• Bank IBK Indonesia 
• Bank KB Bukopin 

ACCD Banks in South Korea:

• Woori Bank
• KEB Hana Bank Seoul
• Shinhan Bank Seoul
• Industrial Bank of Korea
• Kookmin Bank
• SMBC Seoul
• BNI Seoul Branch

With this agreement, Bank Indonesia has now established LCT frameworks with several other countries, including India (Reserve Bank of India), Malaysia (Bank Negara Malaysia), Thailand (Bank of Thailand), Japan (Japan Ministry of Finance), China (People's Bank of China), Singapore (Monetary Authority of Singapore), and South Korea (Bank of Korea).

In their August 2023 research, J.P. Morgan highlighted that de-dollarization involves a significant reduction in the use of the US dollar in global trade and financial transactions, leading to decreased demand for the greenback by nations, institutions, and corporations. This shift could diminish the dominance of the dollar-denominated global capital market, where borrowers and lenders worldwide transact in dollars.