ASEAN KEY DESTINATIONS
Indonesia to use yuan in trade with China from 2016
Indonesia will use the yuan instead of US dollars in its trade with China starting next year, in a bid to save foreign exchange reserves and reduce dependency on the dollar, an official at the National Development Planning Board (Bappenas) has said.
The macroeconomic and finance coordination deputy at Bappenas, Bobby Hamzar Rafinus, said the agreement on using the yuan and rupiah in the two countries’ trade had been secured under the Bilateral Currency Swap Arrangement (BCSA) on Oct. 1, 2013.
The agreement, signed by Bank Indonesia Governor Agus Martowardojo and People’s Bank of China Governor Zhou Xiaochuan, is worth 100 billion yuan (Rp 175 trillion). It is effective for three years and is open to extension.
“Under the agreement, Indonesia and China may actually use the currencies instead of the greenback in trade. However, the implementation depends on the companies and banks of both countries,” Bobby told kontan.co.id on Thursday in Jakarta.
Moreover, the implementation of the deal will depend on global currency updates. In a bid to promote the implementation, the government will make a rule on the technical aspects of the deal’s implementation.
The agreement was further strengthened in September through a loan agreement worth US$3 billion from the China Development Bank with Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Raykat Indonesia (BRI).
The loan can be disbursed in 10 years, with 30 percent of it to be disbursed in renminbi.
The Office of the Coordinating Economic Minister’s trade and industry deputy, Edy Putra Irawady, explained that under the BCSA agreement, Indonesian importers could pay their Chinese counterparts in rupiah instead of dollars.
Meanwhile, Chinese importers can pay for Indonesian goods with renminbi.
However, according to Edy, discussions on the scheme including the extension of the due date had yet to be finalized.
Coordinating Economic Minister Darmin Nasution hoped the measure would be implemented soon as it would benefit Indonesian importers.
“We are moving closer to having renminbi and rupiah-based transactions, instead of US dollars,” he said.
Samuel Asset Manajemen economist Lana Soelistyaningsih argued the scheme had a positive effect on Indonesia’s foreign reserves, as the country’s imports from China contributed 23 percent of its total oil and gas imports.
However, negative aspects must also be anticipated as the country has a deficit in trade with China. If yuan demand increases, the cost of using it will be higher than for dollars.
“The availability of yuan is limited, unlike the US dollar which is plentiful,” Lana explained.
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