Indonesia Pushes Rupiah-Yuan Trade to Reduce Dollar Demand
Bank Indonesia is taking steps to reduce the country's reliance on the US dollar in cross-border transactions by promoting the use of local currencies. Under its Local Currency Transaction (LCT) framework, Indonesian businesses can settle eligible transactions directly in rupiah and partner-country currencies, eliminating the need for intermediate currency conversions.
The LCT framework has been expanded to include several trading partners, including China, Malaysia, and Thailand. For example, Indonesian companies importing goods from China can now use rupiah and yuan directly, rather than first converting their rupiah into US dollars. Similar arrangements allow rupiah and ringgit to be used in transactions with Malaysia.
According to Bank Indonesia's head of monetary management and securities assets, Erwin Gunawan Hutapea, the wider use of local currencies could help diversify demand for foreign exchange in Indonesia's domestic market. This, in turn, may improve rupiah stability by reducing its concentration in US dollars.