JAKARTA (TheInsiderStories) - Indonesia government plans to replace part of the US dollar portion with Renmimbi and other currencies in bilateral trade and investment transactions with several countries to reduce dependency on US dollar in the global market, Indonesia Trade Minister Thomas Lembong said.
The minister said China Renminbi will become the next major currency to be used by Indonesia after US dollar, Euro, UK’s Poundsterling and Japan’s Yen in its trading with other countries.
As part of cementing trade relations with trading partners, the country’s central bank, Bank Indonesia, has set up bilateral swap agreements.
In December 2015, Bank Indonesia (BI) signed Bilateral Currency Swap Arrangement (BCSA) with Reserve Bank of Australia (RBA) worth AUS$10 billion (US$7.3 billion) after agreeing with China to top up the BCSA valued from US$15 billion to US$20 billion.
So far, Indonesia has signed BCSA and BSA with four countries, namely the People’s Bank of China, Bank of Korea, Bank of Japan and Australia. The BCSAs last for three years. The value of BCSA with South Korea, signed in 2014, reaches $10 billion.
BI said, the renewal of swap arrangement with China 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.
Indonesia has also signed Bilateral Swap Agreement (BSA) with Bank of Japan worth $22.76 billion for cash advances and for crisis function in 2013.
Indonesia, Australia, China and South Korea will use both currencies in the trade and investment between those countries. The step is part of central bank’s efforts to reduce US dollar currency in the bilateral trade transaction.
If necessary, Indonesia can access additional funding through the Chiang Mai Initiative Multilateralization scheme — involving ASEAN members, China, Japan and South Korea — and through the World Bank’s deferred draw-down option.
Lembong said in 2014, total exports of Indonesia to Australia was equivalent to $5 billion and imports from China reached $30 billion. Lembong said by carrying out a third of the transaction in Renmimbi, Indonesia can reduce demand for US dollar, which ultimately eases pressure on rupiah.
Relocation
As for investment, Minister Lembong said some of China’s manufacturer owners are relocating their plants to Vietnam, Thailand and Indonesia due to increasing wages in China. Indonesia, he said, can take advantage of this situation by luring investors from China to move their plants to Indonesia.
The increasing wages is also in line with the increasing income per capita in China to $7000-$8000 per annum.
Lembong said around 4-8 percent of exports-imports transactions with China has been done in Reminbi. This is expected to gradually increase. To achieve this goal, Indonesian state owned banks and CDB of China have inked deal to increase the availability of Renmimbi in Indonesian banks. (*)