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NEW UPDATES Asean Affairs   2 December  2015  

RI seeks closer ties with China on renminbi

Authorities in Indonesia and China are seeking to foster closer economic and financial ties as China’s renminbi is set to be included in the International Monetary Fund (IMF)’s benchmark basket of currencies.

Bank Indonesia (BI) Governor Agus Martowardojo said the inclusion of the renminbi would provide opportunities for both Indonesia and China to conduct trade and investment activities using the currency, which would mark a shift away from the widely used US dollar.

“We will welcome its inclusion in the SDR [special drawing right] basket, because it will enable us to diversify our options of trade and investment financing using a new international currency,” he said.

The renminbi is now en route to becoming the fifth currency in the IMF’s unit of accounting, complementing four international currencies, namely the US dollar, the euro, the Japanese yen and the British pound.

The IMF’s decision will be issued on Monday. If it decides to include the renminbi, the new basket of currencies will take effect on Oct. 1, 2016.

According to Agus, BI has renminbi in its foreign exchange (FX) reserve portfolio, and it may increase the amount to support renminbi-denominated transactions in the future.

He stopped short, however, of detailing the current amount of renminbi in the FX reserves.

IMF data reveals that as of September, BI’s US$101.72 billion-worth of FX reserves were made up of 94 percent foreign currency reserves, 0.2 percent IMF reserve positions, 2.4 percent SDRs, 2.8 percent gold and 0.6 percent other reserve assets.

The FX reserves have since fallen to $100.7 billion, as shown by the latest BI data for October.

Agus said that part of the central bank’s support for more renminbi-related transactions would be in the form of bilateral currency swap arrangement (BCSA) renewal with the People’s Bank of China (PBoC).

“We are now in the stage of preparing the necessary documents for the renewal. We are looking to sign the BCSA in January 2016 at the latest,” he said.

Renewal of the BCSA agreement was reached when President Joko “Jokowi” Widodo met with his Chinese counterpart Xi Jinping on the sidelines of a recent G20 Summit in Antalya, Turkey.

Under the agreement, the amount of the BCSA will be increased to 130 billion yuan, an equivalent of around $20 billion, from the previous 100 billion yuan.

The funds, according to Agus, are allocated to various trade, investment and liquidity support purposes.

Earlier, Trade Minister Thomas Lembong had also called for the broader use of the renminbi between China and member countries of the ASEAN to reduce dependence on the US dollar. China is ASEAN’s largest trading partner.

Meanwhile, the Chinese Embassy in Jakarta said the inclusion of the renminbi in the SDR basket would be a great opportunity for both countries to expand the use of the renminbi in trade, investment and currency reserves.

In an email sent to The Jakarta Post, it claimed that the inclusion would increase the representativeness and attractiveness of the SDR, improve the international monetary system and uphold global financial stability.

It also highlighted that “in the first three quarters, China’s direct investments in Indonesia reached $898 million, with a year-on-year increase of 20.3 percent.”

“And our newly signed contract value exceeded $5.35 billion, a significant increase by 99.5 percent and the overall turnover passed $2.73 billion. In cumulative terms, China’s contract value and turnover with Indonesia has reached $48.6 billion and $30.7 billion, respectively, which are ahead of our records with any other ASEAN member.”

According to the embassy, China has just launched the first phase of the Cross-Border Interbank Payment System, which is an example of its efforts to provide better infrastructure for the global use of the renminbi.

The embassy also expressed willingness for joint efforts with Indonesia to foster a more conducive environment for the wider use of the currency in bilateral trade and investment.

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