Indonesia and China are closer to reducing their reliance on the US dollar as they plan to start using their own currencies for bilateral trade and investment within weeks.
The switch to local currency settlement (LCS) is expected to take place in the third quarter of this year.
Bank Indonesia (BI) financial market development head Donny Hutabarat said the move was part of Indonesia’s effort to diversify currencies used in trade and investment with bilateral partners. So far, Indonesia has agreed on LCS with Malaysia, Thailand and Japan.
China is Indonesia’s biggest trade partner. According to Statistics Indonesia, China accounts for more than 32 percent of Indonesia’s imports and over 22 percent of exports. The US dollar has been used as the main medium for international trade ever since the establishment of the Bretton Woods system in 1944, which aimed to provide stability and efficiency in foreign trade and prevent competitive currency devaluation. However, in recent years, more countries have begun to use their own currencies instead of the US dollar for cross-border trade and investment in a trend that has become known as dedollarisation.
China, Russia and the EU have been prime movers in the effort to steer away from the US dollar. By doing so, countries are gradually chipping away at the US currency’s global supremacy. Indonesia has already moved to LCS for bilateral trade with other countries of the region, including Malaysia, Thailand and the Philippines.
Source: the Phnom Penh Post
https://www.phnompenhpost.com/business/indonesia-china-reduce-usd-bilateral-trade
July 13, 2021
