JAKARTA (TheInsiderStories) - Indonesian Central Bank (BI) and the Bank of Korea signed a Renewal of Bilateral Local Currency Swap Arrangement (BCSA) for another three years to strengthen the cooperation between the two countries, said the South Korean’s Ministry of Strategy and Finance in a press statement on Monday. This arrangement was signed by the Governor of the Bank of Korea, Juyeol Lee and the Governor of BI, Agus D.W. Martowardojo in South Korea.
Based on the statement, the arrangement allows for the exchange of local currencies between the two central banks of up to KRW10.7 trillion or Rp115 trillion. In particular, the arrangement will also ensure the settlement of trade in local currency between the two countries even in times of financial stress to support regional financial stability.
The ministry said the currency agreement is to promote bilateral trade and bolster financial cooperation between the two countries. South Korea has swap deals with China, Malaysia, Australia and Indonesia. Seoul has been in talks with the United Arab Emirates to renew their swap arrangement.
However, South Korea’s $10 billion bilateral currency swap agreement with Japan expired in 2015, 14 years after the two countries first signed the agreement in 2001. The Seoul-Tokyo talks to reopen the deal have been in a deadlock since January this year as the Japanese government broke off the talks for diplomatic reasons.
Last year, BI, Finance Minister Sri Mulyani Indrawati, and Japan’s Deputy Prime Minister and Minister of Finance, Taro Aso, agreed to extend the bilateral swap arrangement (BSA) between the two countries. The arrangement was made while attending the IMF and World Bank Annual Meeting in Washington DC, USA, on Oct. 7.
This cooperation also supports the effort to maintain macroeconomic and financial stability in the region and complement existing financial safety net at the regional as well as the global level. The amount of the cooperation is US$22.76 billion. BI also has signed BCSA with Reserve Bank of Australia (RBA) worth AUS$10 billion ($7.3 billion) in 2015.
Earlier in Nov. 2015, BI and China also agreed to top up the BCSA valued from $15 billion to $20 billion. The new arrangement is expected to be signed in first quarter of 2016. The current BCSA was renewed for the second time in 2013 after it was established in 2009.
So far, Indonesia has signed BCSA with four countries, namely People’s Bank of China, Bank of Korea, Australia and Japan. All BCSAs last for three years period. Indonesia needs to strengthen its foreign exchange reserves to anticipate the impact of The Federal Reserves normalization policy and other global effects.