Indonesia is taking concrete steps to reduce its reliance on the US dollar in financial transactions. This strategic move is exemplified by the joint efforts of the government and the central bank, Bank Indonesia (BI), to establish a National Task Force known as the Satuan Tugas (Satgas) Nasional for Local Currency Transactions (LCT). The primary objective of this dedicated task force is to promote economic resilience and stability within the nation, while simultaneously addressing the global phenomenon of dedollarization.
Dedollarisation, a trend gaining momentum worldwide, has also been embraced by a group of influential nations known as BRICS, comprised of Brazil, Russia, India, China, and South Africa. These nations are actively working to reduce their dependence on the US dollar in international trade by exploring alternative currencies for cross-border transactions.
It is essential to recognize that the implications of dedollarization are not confined solely to the United States; they resonate on a global scale. As Finance Minister Sri Mulyani aptly noted, “This geopolitical fragmentation has triggered the phenomenon of dedollarization, which will have significant implications for both the US economy and the global economy.” Her remarks were delivered during a session at the Indonesian House of Representatives on May 19, underscoring the far-reaching consequences of this paradigm shift in the world of finance.
Indonesia is positioning itself at the forefront of these transformative developments. On September 6, 2023, the government took a decisive step by formally establishing the LCT Task Force. This historic milestone was commemorated through the signing of a Memorandum of Understanding (MoU) involving ten ministries and institutions during the ASEAN Indo-Pacific Forum (AIPF), a crucial component of the ASEAN 2023 High-Level Conference.
Finance Minister Sri Mulyani Indrawati, a driving force behind Indonesia’s dedication to dedollarization, emphasized that the adoption of local currencies in bilateral transactions between Indonesia and its partner nations, facilitated by the LCT framework, will bolster economic stability on the home front. She succinctly expressed this sentiment via her Instagram account @smindrawati on Wednesday, September 6, 2023.
Indonesia’s Accounting: Unpacking the Essence of LCT
Originally christened as Local Currency Settlement (LCS), the initiative has now evolved into the more encompassing Local Currency Transaction (LCT) framework. This evolution aligns with the broadening spectrum of transaction types that this initiative is designed to facilitate.
At its core, LCT represents a financial transaction mechanism that empowers individuals to conduct retail transactions in their destination country using the local currency, in this case, the Indonesian rupiah. The focus of LCT transactions primarily revolves around retail activities and consumer-oriented exchanges.
Within the purview of LCT cooperation, BI has strategically collaborated with local authorities in countries such as Malaysia, Thailand, and China. Furthermore, Indonesia has diligently negotiated agreements with Singapore and South Korea to establish a comprehensive framework for the effective implementation of LCT cooperation.
Indonesia’s Accounting: LCT as a Catalyst for Exchange Rate Stability
In a synchronized narrative, Governor of Bank Indonesia (BI), Perry Warjiyo, articulated the primary motive behind the formation of the LCT Task Force. This strategic maneuver aims to propel the adoption of LCT as a potent instrument for fortifying the stability of the Indonesian rupiah’s exchange rate while concurrently enhancing the resilience of the domestic financial landscape.
The anticipated benefits of implementing LCT extend to a spectrum of activities, including trade, cross-border payments, and potentially, the trading of financial securities in a dynamic and interconnected world.
The mechanism underpinning cross-border payments hinges on the interlinking of the QR code-based payment system of Indonesia, known as QRIS, with the payment ecosystems of partner countries. This cross-border QRIS collaboration is poised to revolutionize how international tourists engage in financial transactions during their travels. For instance, Indonesian tourists venturing to Thailand can seamlessly make purchases using a QR code, and conversely, tourists from Thailand can enjoy a similar experience when visiting Indonesia.
In Governor Perry Warjiyo’s words, “Bank Indonesia firmly believes that the National LCT Task Force will serve as an invaluable platform for fostering coordination and synergy among ministries and institutions, with the shared objective of promoting the widespread use of local currencies in bilateral transactions between Indonesia and our key partner nations.”
Moreover, Governor Perry emphasized that various ministries and institutions are poised to collaborate extensively to devise mechanisms that simplify, incentivize, and expedite export-import processes for businesses that opt for local currency transactions in their interactions with partner countries. This strategic collaboration aims to create an ecosystem that nurtures and sustains dedollarisation, ultimately contributing to Indonesia’s economic resilience and financial stability on the global stage.
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