Jakarta, 16 Februari 2022 –
COVID-19 Pandemic had impacted the financial market, trade, and investment. Indonesia had prepared itself through a series of significant and fundamental steps to deal with the financial market volatility, both by managing the market sentiment and anticipating response policies taken by developed countries. A number of bilateral initiatives were taken to implement currency diversification, including the use of Local Currency Settlement (LCS) to support economic stability. It was conveyed by the Indonesian Finance Minister Sri Mulyani Indrawati at the Leader's Insight session under the theme "Strategic Policy Framework to Enhance the Usage of Local Currency Settlement in Trade and Investment in Asia" on Wednesday, Feb. 16. The session was a part of side event series organized on the third day of the second Finance and Central Bank Deputies (FCBD) level meeting and the first Finance Ministers and Central Bank Governors (FMCBG) level meeting which took place from Feb. 14 to 19 in Jakarta. On the occasion, she appreciated Bank Indonesia that had been encouraging the implementation of the LCS since 2018.
Bank Indonesia Governor Perry Warjiyo underlined the importance of currency usage diversification to facilitate global investment and trade for developing countries to support economic growth and reduce vulnerability, including the potential of the systemic impact caused by global economic shock. LCS as one of the currency diversification implementations can be used to control the exchange rate volatility and support the economy. The LCS transaction is predicted to rise in 2022 after increasing significantly in 2021 and is planned to penetrate other countries.
People's Bank of China (PBC) Governor Yi Gang also expressed his support on the currency diversification scheme. He assured that the cooperation scheme for transaction completion with the local currency (LCS) could increase trade and investment. The support is actualized into the implementation of the LCS between China and Indonesia that is believed to strengthen the economies of both countries and accelerate the economic recovery in the Asian region. In the high-level discussion session, Siddharth Tiwari, the Bank for International Settlements (BIS) chief representative for Asia and the Pacific, added the need for a boost of local currency market attractiveness through the financial market development using LCS, among others government bond market, repo market, and derivative market to hedge the exchange rate risk. He also encouraged the central banks to cooperate with the investor to increase their investment in corporate bonds in local currency, like BIS's Asian Bond Fund.
In the second session that served as a discussion forum for economic actors, the speakers, among others Indonesia's senior economist Chatib Basri, Bank Mandiri president director Darmawan Junaidi, BCA president director Jahja Setiaatmadja, and Indonesian Employers Association (Apindo) chair Hariyadi Sukamdani, focused on the role of Appointed Cross Currency Dealers (ACCD) banks in facilitating LCS transactions for the export-import actors and investors (Foreign Direct Investment). ACCD banks' support through LCS scheme incentive can be used to optimize the use of LCS and provide the choice of currency for employers and investors in the business transactions settlement in order to mitigate risk in the exit policy period.
The event aimed to support the national economic recovery by encouraging trade and investment activities through the promotion of LCS implementation in Asia, given the region's increasing role in global economic activities. In line with the vision and agenda of the G20 Presidency in 2022, Bank Indonesia continues to increase collaboration with developing and developed countries as a contribution to stabilizing the national, regional, and global financial systems.
