Bank Indonesia can buy government bond up to 25 percent on the primary market not later than next week, said the governor last week - Photo by BI Office

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) and Bank of Korea (BoK) signed a renewal of a bilateral local currency swap arrangement (BCSA). The arrangement allows the central banks exchange of local currencies up to KRW10.7 trillion or Rp115 trillion (US$8.21 billion).

The deal was signed by the governor of BoK, Juyeol Lee, and the BI’ governor, Perry Warjiyo, recently. Similar to the previous agreement, the purpose of the BCSA is 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.

Similar to the previous agreement, the purpose of the BCSA is 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 6th March 2020 to 5th March 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, the central bank and the Monetary Authority of Singapore (MAS) agreed to extend bilateral swap agreements with worth of $10 billion for another year. This cooperation includes bilateral swap agreements in local currency and repo in US dollars, which BI and MAS signed in November of 2018.

Earlier, The Bank and Bank Negara Malaysia’ (BNM) has signed the local currency bilateral swap agreement, which will enable both central banks to access foreign currency liquidity from each other if needed. 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 the agreement, allows the central banks to exchange local currencies between up to Rp28 trillion. 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.

The central bank also has signed Local Currency Settlement agreement with Thailand’ central bank and gave positive impact on bilateral trade between the two countries. Total transactions in the first two months of 2019 reached THB272 million ($8.96 million). The transactions increased sharply from the same period last year amounting to THB69.5 million.

Through this scheme, Indonesian importers wishing to import goods from Thailand can make transactions using the baht currency through the bank operations of the framework. Conversely, Indonesian exporters can be paid in Rupiah, without convert it into US Dollar.

This cooperation framework will reduce the transaction costs of foreign exchange against the rupiah with a direct price quote between the Rupiah and the partner country’ currency. This is expected to be able to develop financial markets based on local currencies, encourage diversification of currency exposure, and expand access to business actors across the region.

Written by Staff Editor, Email: theinsiderstories@gmail.com