Bank Indonesia (BI) and the Bank of Korea (BOK) announced another milestone on December 10, 2023, to promote the wider use of local currencies in bilateral transactions at the sideline of a high-level bilateral meeting in Indonesia. During the meeting, BI and BOK agreed to establish the Operational Guidelines for the local currency transactions framework as a first step, following the signing of a Memorandum of Understanding (MoU) on a cooperation framework to promote bilateral transactions in local currency by both central banks in May 2023. The framework, scheduled to be operationalized in 2024, will facilitate the settlement of trade transactions between Indonesia and Korea in their local currencies, reducing exposure to exchange rate risks and costs for businesses and other users.

Banks in Indonesia and Korea will be able to quote the local currency pair, enabling businesses and other users to reduce their exposure to exchange rate risks and costs associated with bilateral transactions. This will ultimately contribute to promoting trade between Indonesia and Korea, as well as deepening the financial markets in local currencies in both countries.

Mr. Perry Warjiyo, Governor of BI, expressed excitement about this initiative, stating, "In our ongoing commitment, we are excited to announce our strategic initiative to promote wider use of local currencies in bilateral transactions through the Local Currency Transaction (LCT) framework, which is expected to be implemented in 2024. After the LCT Framework implementation, cross-border trade between Indonesia and Korea can use direct quotations of local currency exchange rates provided by the Appointed Cross Currency Dealer (ACCD) banks under the LCT framework. This provides more options for users for trade transactions and serves as a key to improving transaction efficiency and strengthening macroeconomic stability by encouraging more extensive use of local currencies for bilateral trade transactions. Bank Indonesia believes these initiatives mark a key milestone in strengthening bilateral financial cooperation between Korea and Indonesia." 

Mr. RHEE, Chang Yong, the Governor of the Bank of Korea, said, "Indonesia, with its vast territory and population base, plays a crucial role in the global supply chain of advanced sectors such as batteries and electric vehicles. The interest of Korean businesses in Indonesia is also steadily growing. Against this backdrop, the implementation of the LCT framework which promotes the use of local currencies in bilateral trade transactions, is expected to positively impact economic development through promoting bilateral trade and also wider use of local currency. Based on Indonesia's experience in successfully implementing LCT framework with a number of other countries over the past few years, it is expected that the framework between Korea and Indonesia will also be successfully implemented and established. To achieve this objective, both central banks pledge to exert their utmost efforts."

The two central banks have expressed a strong commitment to implementing the local currency transactions framework to strengthen cross-border trade, enhance regional financial market stability, and deepen the local currency market in both countries. This initiative aligns with the financial integration efforts of countries in the region to facilitate the wider use of local currencies.