Jakarta. Bank Indonesia, the country's central bank, is looking into establishing a local currency settlement with the Philippines and Singapore to allow transactions between these nations to be done in local currency.
"We have cooperated with Japan, China, Thailand, and Malaysia before. We are currently undergoing the process with the Philippines, Singapore, and others," said the Governor of Bank Indonesia, Perry Warjiyo, at the 7th Indonesia Finance Association International Conference, on Wednesday.
Through this LCS transaction, trade and investment affairs between Indonesia and the two countries will no longer use the United States (US) dollar but directly use the rupiah, Philippine peso, or Singapore dollar.
He affirms that the expansion of LCS will be beneficial for all transactions carried out with the partner countries by making the process easier and more efficient.
"LCS contributes to the stability and efficiency of both the economy and business. There will be no need to convert to US dollars within the process," he said.
Bank Indonesia first agreed on an LCS with Thailand and Malaysia in 2018. This was followed by a settlement with Japan in September 2020 and China in 2021.
Rahmatullah Sjamsudin, the director of the department of financial market development at Bank Indonesia, said that the growth value of bilateral transactions with Malaysia, Japan, and Thailand using local currencies has continued to accelerate and increase.
"As of July 2021, the transaction value with Thailand, Malaysia, and Japan has already reached $1.2 billion with [a monthly] average of $177 million," Rahmatullah said in a virtual media conference on Wednesday. The LCS transaction value using the Japanese Yen reached $190 million between January-July 2021.
In comparison, Indonesia's bilateral trade with the three countries reached $43.9 billion in this year's first eight months.
According to him, in 2018, the LCS with Malaysia and Thailand had an average monthly value of $31.7 million, bringing the total to $350 million for the entire year. In 2019, LCS transactions from the two countries totaled $760 million, or $63.3 million per month.
Furthermore, in 2020, LCS transactions with Thailand, Malaysia, and Japan were increasing, with an average of $72.2 million per month or a total of $800 million, Rahmatullah said,