Earlier this week, the central banks of Indonesia (Bank Indonesia), Malaysia (Bank Negara Malaysia), Thailand (Bank of Thailand) jointly announced the launch of the local currency settlement framework. This framework aims at boosting the use of local currencies in transactions (specifically related to trade and investment) conducted between Indonesia, Malaysia and Thailand in an effort to reduce these countries' dependence on the US dollar.
In a statement, which was released by Bank Indonesia on 11 December 2017, the establishment of this new framework was called "a key milestone in strengthening regional financial cooperation between the three central banks".
Currently, most international trading activities that are conducted in Indonesia are done in US dollars. This involves both export and import. Bank Indonesia Governor Agus Martowardojo said 94 percent of Indonesia's exports are traded in US dollars, while around 78 percent of the country's import activities are done in US dollars. This reflects the country's huge dependence on the greenback in terms of trade.
Therefore, Bank Indonesia would like to diversify the use of currencies in international trade (involving the three aforementioned countries), i.e. the rupiah, ringgit and baht. This would then impact positively on Indonesia's financial system because it would start to depend less on the US dollar. Moreover, if trade between Indonesia and Malaysia or between Indonesia and Thailand can be done in the local currency, then trade will become more efficient as there is no need for a third currency, hence no additional costs.
The three central banks have appointed specific banks - that meet key qualifications and therefore are considered strong, healthy and internationally experienced banks - to facilitate bilateral trade in the context of this framework.
To support the operationalisation of the rupiah-ringgit framework, the following Indonesian banks have been appointed:
Bank Rakyat Indonesia (BRI)
Bank Central Asia (BCA)
Bank Negara Indonesia (BNI)
Bank CIMB Niaga
Bank Maybank Indonesia
In Malaysia the following banks have been appointed:
Hong Leong Bank
In Thailand the following banks have been appointed:
Bank of Ayudhya
Siam Commercial Bank