Jakarta, 11 January 2022 -- There are many benefits that can be obtained by business actors through local currency settlement (LCS) transactions in bilateral trade and investment transactions. The benefit of LCS is as a hedging instrument in local currency, with more efficient transaction exchange rate conversion fees. In addition, LCS can be an alternative to export financing and open investment opportunities in local currencies, as well as play a role in diversifying currency exposure in the settlement of transactions between countries.
After Malaysia and Thailand, Bank Indonesia (BI) established cooperation on LCS implementation with Japan and China last year. Especially for Japan, the use of LCS in Yen is recorded as the largest in terms of transaction value. The central bank noted that of the four countries that have collaborated on the use of LCS, the use of the Yen currency has an average transaction value of US$109.4 million per month. LCS transactions in Malaysian Ringgit are US$45.3 million per month, and in Thai Baht it is US$17 million per month. Meanwhile, LCS with China, since being implemented in September 2021, has recorded transactions of US$15.1 million per month.
BNI together with the BI Tokyo Representative Office, the Embassy of the Republic of Indonesia (KBRI) in Tokyo also promoted the use of local currency or local currency settlement (LCS). The Indonesian Ambassador to Japan, Heri Ahmadi, assessed that the potential for the use of SCS is still very large. Moreover, he continued, the transaction value related to LCS with Yen is quite large compared to several other countries that have signed this cooperation agreement. "Among Indonesia's LCS, Japan has the highest score, but there are still a lot of open opportunities," he said on Friday (7/1/2021).
The implementation of this LCS also depends on banking services that have been appointed by BI. Where currently there are dozens of banks mandated by the central bank as Appointed Cross Currency Dealers (ACCD). Through LCS, it is hoped that Japanese companies with business coverage in Indonesia, and Indonesian companies with business exposure to Japan, can be more efficient because they don't have to bother converting exchange rates.
"LCS will greatly facilitate transactions between PT (companies) in Indonesia & Japan," said Heri. In this development, PT Bank Negara Indonesia (Persero) Tbk (BBNI) as the only national bank that exists in the State of Sakura through its branch office in Tokyo has great potential to support the increase in LCS transactions in Yen.
Moreover, BNI has been appointed by BI as an ACCD to facilitate LCS transactions through opening currency accounts in partner countries since 2018. Of course, it is hoped that more business players will be able to take advantage of these LCS transaction services to develop their businesses.
BNI's Treasury & International Director, Henry Panjaitan, stated that BNI's LCS transactions increased significantly by 6.25%. Of the 4 countries that have LCS cooperation, Japan is also the country with the most prominent foreign exchange transaction activities. "We have also prepared a strategy to support the increase in LCS transactions. This year, BNI will increase literacy for all customers, which will also be supported by several stimuli so that LCS transaction activities can increase," he said.
Meanwhile, the Head of the Research and Development Agency of the Ministry of Trade (Kemendag), Kasan Muhri said that one of the important aspects in implementing LCS is the presence of implementing banks in countries that have collaborated. That way, LCS implementation can be more effective and dependence on the US dollar can be reduced.
“Actually, it's not only the many LCS, but what is more important is the effectiveness of its implementation. Then the portion of non-USD foreign exchange which is the target of reducing dependence on the US dollar," Kasan said.
One of the state-owned banks that has a large network of Foreign Branch Offices (KCLN) and supports export and import activities is BBNI. Currently BNI has KCLNs in 6 countries, namely Singapore, Hong Kong, Japan, South Korea, the United States, and the United Kingdom.
This means that BNI has a big role in implementing LCS with various trading partner countries of Indonesia. Kasan said that ideally the implementing bank or the bank that facilitates the implementation of the LCS should exist in each country that performs the LCS. "BNI must provide rupiah liquidity in every country where Indonesia has LCS for effective implementation," said Kasan.