Indonesia and South Korea launch local currency agreement

Indonesia and South Korea have signed a new local currency transaction (LCT) framework to boost bilateral trade using the Indonesian rupiah and South Korean won.

The agreement was formalised by Bank Indonesia (BI), the Bank of Korea, and South Korea’s Ministry of Economy and Finance to reduce reliance on the U.S. dollar and other foreign currencies.

The LCT framework aims to mitigate exchange rate risks and improve transaction efficiency by enabling direct currency exchanges between the two countries.

Erwin Haryono, head of BI's communication department, called the framework a “crucial achievement” in strengthening financial cooperation between Indonesia and South Korea.

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

The initiative builds on a memorandum of understanding signed in May 2023 and an operational framework agreement concluded in June 2024.

The new local currency trade agreement will take effect on September 30, 2024, and will allow designated banks to directly trade in rupiah and won.

This framework enables appointed cross-currency dealer (ACCD) banks to quote and transact directly in the two local currencies, bypassing the need for intermediary currencies like the U.S. dollar.

In Indonesia, the designated ACCD banks 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 play a key role in implementing the LCT framework, conducting transactions in their respective local currencies to promote increased bilateral trade and strengthen economic ties.

The new framework reflects a shared commitment by both countries to enhance financial cooperation and minimise the impact of global currency fluctuations on their economies.

By facilitating direct currency transactions, the agreement is expected to simplify cross-border trade and encourage greater economic collaboration between Indonesia and South Korea.