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🇮🇩 Indonesia /Economy & Trade

Bank Indonesia Eyes Local Currency Deal with Saudi Arabia to Stabilize Rupiah During Hajj Season

From Republika · () Indonesian

Translated from Indonesian, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Bank Indonesia (BI) identifies the high demand for US dollars during the hajj season as a seasonal factor weakening the Indonesian Rupiah.
  • BI is actively pursuing a Local Currency Transaction (LCT) agreement with Saudi Arabia to mitigate this dependency.
  • Indonesia has already established LCT partnerships with several countries since 2018 to reduce reliance on the US dollar for international trade.

Bank Indonesia is taking proactive steps to shield the Indonesian Rupiah from seasonal pressures, particularly those exacerbated by the annual hajj pilgrimage. Recognizing the significant demand for US dollars during this period, BI is strategically working towards establishing a Local Currency Transaction (LCT) framework with Saudi Arabia. This initiative is a crucial part of Indonesia's broader strategy to decrease its structural dependence on the US dollar in international trade.

As stated by Ruth A. Cussoy Intama, Director of BI's Financial Market Deepening Department, the goal is to "change" the current reliance on dollars during the hajj. The implementation of LCT is not new to Indonesia; the country has successfully forged similar agreements with Malaysia, Thailand, Japan, China, South Korea, and the UAE since 2018. These partnerships are vital for stabilizing the Rupiah and fostering more direct, mutually beneficial trade relationships.

The hajj season is still dependent on the dollar. That is precisely why we want to change; we want to have LCT with Saudi Arabia.

— Ruth A. Cussoy Intama, Director of BI's Financial Market Deepening DepartmentExplaining Bank Indonesia's strategy to reduce dollar dependency during the hajj.

The LCT mechanism allows for the settlement of transactions using the partner country's currency, thereby bypassing the need for a third-party currency like the US dollar. This is particularly important given the dollar's pervasive role in global economic activities, including Indonesia's own export and import sectors. By expanding these LCT agreements, BI aims to build a more resilient financial ecosystem for Indonesia.

From an Indonesian perspective, this move is more than just a financial strategy; it's about asserting economic sovereignty. While global financial news might frame this as a technical adjustment, for us in Indonesia, reducing dollar dependency means greater control over our economic destiny. The hajj season, while a deeply spiritual time, also presents a recurring economic challenge. By addressing it through LCT with Saudi Arabia, we are not only seeking currency stability but also strengthening bilateral ties and paving the way for a more independent economic future, less susceptible to external fluctuations.

That is what we are working on.

— Ruth A. Cussoy Intama, Director of BI's Financial Market Deepening DepartmentConfirming the ongoing efforts to establish an LCT agreement with Saudi Arabia.
DistantNews Editorial

Originally published by Republika in Indonesian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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