Photo: Special

JAKARTA (TheInsiderStories) –Bank Indonesia (BI) announced on Tuesday that banks will be permitted to conduct hedging transactions in Chinese Yuan (CNY), starting Dec. 6 to support the central bank’s efforts to broaden the use of foreign currencies in the economy.

Previously, BI opened Swap Hedging Transactions in Japanese Yen (JPY) on July 12, 2017 and in Euro on Oct. 25 – but specifically for the central bank. The addition of CNY notes for hedging is part of Bank Indonesia’s attempt to diversify financing sources in the economy, to deepen the money market and stabilize the Rupiah.

“The policy will support the efforts to diversify international investment and trade activities in various currencies. In addition, the transaction is expected to help manage liquidity and maintain the stability of the Rupiah exchange rate,” said BI spokesperson Agusman in an official statement.

The time frame of the hedging swap transactions to Bank Indonesia in non-US dollar currency is opened once a week, every Wednesday between 2 p.m and 4 p.m local time.

The bank may propose a Hedging Swap Transaction to Bank Indonesia for the Chinese Yuan currency in that time window with a minimum nominal of CNY 10,000,000 with a multiple of CNY 1,000,000 offer and available tenure for 3 (three) and 6 (six) months.

Agusman said that CNY utilizing would reduce pressure posed by Indonesian rupiah exchange against the US dollar amid the large deficit gap between China and Indonesia.

China is playing big role in Indonesia deficit in trade balance. Data from the Trade Ministry shows that Indonesia posted a trade deficit of $8.4 billion with China during the period from January to August this year, slightly better than $9.9 billion deficit recorded in the same period last year.

Previously, BI Governor Agus D.W. Martowardojo said the monetary agency will maintain the measure exchange rate management carefully in accordance with its fundamentals by supporting the working of market mechanism.

In order to strengthen the management of rupiah stability, BI will continues to encourage to reduce dependence on certain currencies. “In addition, we will continue to develop non-US dollar hedge swaps to Bank Indonesia by expanding the types of currencies that can be transacted,”  said Martowardojo at the Annual Meeting, last week.

To that end, he explained that his side will also strengthen bilateral cooperation to improve the settlement of bilateral trade transactions by using local currency or Local Currency Settlement (LCS).

These efforts are pursued through the development of LCS schemes facilitated by central bank authorities such as the Bilateral Currency Swap Arrangement (BCSA) and the Appointed Cross Currency Dealers (ACC), involving the role of the authorities and the private sector, will be implemented early next year.

“Mitigating exchange rate risks from foreign debts will continue to be strengthened,” he said.

Written by Elisa Valenta, email : elisa.valenta@theinsiderstories.com

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