Bank Indonesia, the Bank of Korea, and South Korea’s Ministry of Economy and Finance have collaborated to introduce a local currency transaction framework aimed at boosting bilateral trade using the rupiah and won. This innovative initiative is designed to mitigate exchange rate risks and streamline transaction processes by enabling direct currency transactions between the two countries, eliminating the dependency on U.S. dollars or other foreign currencies.
Empowering Trade with a Local Currency Trade Agreement
The recent partnership between Bank Indonesia (BI), the Bank of Korea, and South Korea’s Ministry of Economy and Finance has resulted in the establishment of a local currency transaction (LCT) cooperation framework to optimize bilateral trade using the Indonesian rupiah and the South Korean won.
Erwin Haryono, head of BI’s department of communication, highlighted the significance of this collaboration, stating:
The implementation of the LCT framework between Indonesia and South Korea signifies a pivotal milestone in the financial cooperation between the two nations.
Building on the memorandum of understanding signed in May 2023 and the operational framework agreement inked in June 2024, the LCT framework is scheduled to come into effect on Sept. 30, 2024.
Haryono elaborated that the primary objective of the framework is to bolster financial cooperation between Indonesia and South Korea by facilitating direct currency transactions, eliminating the reliance on U.S. dollars or other foreign currencies. This strategic approach not only reduces exchange rate risks but also enhances transaction efficiency. The appointed cross-currency dealer (ACCD) banks will play a pivotal role in directly quoting and trading in rupiah and won.
In Indonesia, the designated ACCD banks include major institutions such as Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), and others. Meanwhile, in South Korea, key players like Woori Bank, KEB Hana Bank Seoul, and Shinhan Bank Seoul are part of the ACCD network. These institutions are poised to support the framework by conducting transactions in their local currencies, fostering increased bilateral trade, and strengthening the economic ties between Indonesia and South Korea.
