Bank Indonesia and Bank of Thailand announced the expansion of Local Currency Settlement framework which includes expanding the 'underlying' to direct investment - Photo by BI Office

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) and Bank of Thailand (BoT) announced the expansion of Local Currency Settlement framework which includes expanding the ‘underlying’ to direct investment, said the two in an official statements. The agreement has been effective on Dec. 21.

The framework was first launched on Dec. 11, 2017 after both Banks signed the memorandum of understanding on Dec. 23, 2016. This expansion is a part of the continuous effort to promote wider use of local currencies to facilitate and enhance trade and direct investment between Indonesia and Thailand.

Last year, Indonesian government, BI, and the Financial Services Authority have agreed on a smooth payment system through the expansion of local currency settlement cooperation for international trade and investment with Malaysia and Thailand. Recently, the central bank and the Monetary Authority of Singapore (MAS) also extended the US$10 billion bilateral swap agreement for another year.

The arrangement comprises of local currency bilateral swap agreement between the two central banks of up to S$9.5 billion (US$7.07 billion) and a bilateral repo agreement of $3 billion that allows for repurchase transactions between the Banks to obtain US Dollar cash using G3 government bonds as collateral.

For background, the bilateral swap agreement was established in November 2018, following the Singapore – Indonesia Leaders’ Retreat. Then, the arrangement was extended for a year in November 2019. Beside with Singapore, BI and Japanese ministry of finance has implemented local bilateral settlement in both countries’ trade transactions and direct investment starting today.

This framework based on the memorandum of understanding signed by the two parties on Dec. 5, 2019. The central bank says, this initiative is part of an ongoing effort to encourage the wider use of local currencies in trade transactions and direct investment between the two countries.

The implementation of this framework is an important milestone in efforts to strengthen financial cooperation between BI and the Japanese ministry of finance, adds by the Bank. To support the operationalization of this framework, BI and the Japanese ministry of finance have appointed several banks in their respective countries to act as Appointed Cross Currency Dealers.

These banks are deemed to have met the requirements and have the ability to facilitate transactions between Rupiah and Yen according to the framework agreed by both parties. In May 2020, BI and Bank of Korea (BoK) also signed a renewal of a bilateral local currency swap arrangement.

The arrangement allows the central banks exchange of local currencies up to KRW10.7 trillion ($9.52 billion) to promote bilateral trade and financial cooperation for economic development of the two countries. In particular, the arrangement will ensure the settlement of trade in local currency between the two countries even in times of financial stress and thus support regional financial stability.

The effective period of the facility will be three years, from March 6, 2020 to March 5, 2023, which could be extended by mutual consent of both sides. Previously BI has signed the same agreement with China, Singapore, Thailand, Japan, and Australia.

Last year, BI Governor Perry Warjiyo and Bank Negara Malaysia’ governor Nor Shamsiah Yunus also signed the same agreement. Both also signed memorandum of understanding to forge closer cooperation on innovation in payments and digital financial services, as well as surveillance on anti-money laundering and counter financing of terrorism.

With this arrangement, will allowed the central banks to exchange local currencies up to Rp28 trillion ($1.91 billion). This will complement efforts to support the wider usage of local currencies to facilitate cross-border economic activity between Malaysia and Indonesia. The effective period of the arrangement is three years and it can be extended by mutual agreement of the central banks.

US$1: S$1.35, RM1,124.03, Rp14,700, THB30.20

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