Indonesia and China's local currency settlement mechanism officially launched

According to China People's Daily Online, China will officially use the RMB in trade transactions with Indonesia, which means that the two countries will no longer use the U.S. dollar as an international currency when conducting state-to-state transactions.

In 2020, the trade volume between China and Indonesia reached 78.37 billion U.S. dollars, a decrease of 1.7% over the same year. Among them, China's exports to Indonesia were 41 billion U.S. dollars and its imports from Indonesia were 37.37 billion U.S. dollars, a decrease of 10.2% and an increase of 9.5% over the same year.

It is reported that the cooperation framework was formulated in accordance with the memorandum of understanding negotiated and signed by Bank Indonesia Governor Perry Warjiyo and People’s Bank of China Governor Yi Gang on September 30, 2020. The two parties will officially launch Indonesia’s cooperation with Indonesia on September 6, 2021. China's local currency settlement mechanism, namely LCS.

BOC Hong Kong Jakarta Branch and Bank of China have been selected as chartered cross-currency banks, which can carry out RMB-Indonesian rupiah settlement for current account and cross-border investments and conduct direct quotation transactions between RMB and Indonesian rupiah.

On the same day, Bank of China Hong Kong Jakarta Branch completed the first direct quotation transaction between RMB and Indonesian rupiah under the LCS, and converted a sum of Indonesian rupiah into RMB at the direct quotation for Indonesia Qingshan Stainless Steel Co., Ltd. and remitted it to the company located in Zhejiang Province. A RMB account of a service provider. At the same time, it also completed a forward RMB purchase of foreign exchange for Sany Heavy Industry Indonesia. In addition, the branch also cooperated with the Bank of China Headquarters and Zhejiang Branch to provide quotations in RMB and Indonesian Rupiah for customers in China, and successfully received the first Indonesian Rupiah remittance under LCS in China.

China and Indonesia have officially launched the RMB, which is no doubt that  it’s a good news for sellers. After skipping the US dollar payment link, sellers not only reduced the workload of exchange rate calculations, but also reduced their trade income that affected by US dollar fluctuations. In addition, the official launch of LCS indicates that China and Indonesia will develop a more friendly and free bilateral trade relationship. It is believed that there will be certain subsidy policies on tariffs and freight in the future, which can greatly reduce the burden on sellers.