Indonesia and South Korea Sign New Local Currency Agreement to Boost Trade

Bank Indonesia, the Bank of Korea, and South Korea’s Ministry of Economy and Finance have introduced a local currency transaction framework to boost bilateral trade using the rupiah and won. This initiative aims to reduce exchange rate risk and improve transaction efficiency by facilitating direct currency transactions between the two nations, bypassing the need for U.S. dollars or other foreign currencies.

Indonesia and South Korea Sign Local Currency Trade Agreement

Bank Indonesia (BI), the Bank of Korea, and South Korea’s Ministry of Economy and Finance have finalized an agreement on a local currency transaction (LCT) cooperation framework to enhance bilateral trade using the Indonesian rupiah and the South Korean won.

Erwin Haryono, head of BI’s department of communication, emphasized the importance of this development, saying:

The implementation of the LCT framework between Indonesia and South Korea would mark a crucial achievement in the two countries’ financial cooperation ties.

This agreement follows a memorandum of understanding signed in May 2023 and an operational framework agreement signed in June 2024. The LCT framework is set to take effect on Sept. 30, 2024.

Haryono explained that the framework aims to strengthen financial cooperation between the two countries by facilitating direct currency transactions without the need for U.S. dollars or other foreign currencies, thereby reducing exchange rate risk and improving transaction efficiency. It will enable the appointed cross-currency dealer (ACCD) banks to directly quote and trade in rupiah and won.

In Indonesia, the banks designated as ACCDs include Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank Central Asia, Bank CIMB, Bank BTPN, Bank Maybank Indonesia, Bank OCBC NISP, Bank DBS Indonesia, Bank Woori Saudara Indonesia, Bank KEB Hana Indonesia, Bank Shinhan Indonesia, Bank IBK Indonesia, and Bank KB Bukopin. In South Korea, the ACCD banks are Woori Bank, KEB Hana Bank Seoul, Shinhan Bank Seoul, Industrial Bank of Korea, Kookmin Bank, SMBC Seoul, and the Seoul branch of BNI. These banks will be instrumental in supporting the framework by conducting transactions in their respective local currencies, promoting increased bilateral trade, and enhancing economic ties between Indonesia and South Korea.