Indonesia and South Korea have taken a major step to enhance bilateral trade by finalizing a local currency transaction (LCT) framework that enables direct trade using the Indonesian rupiah and South Korean won.
The agreement, signed by Bank Indonesia, the Bank of Korea, and South Korea’s Ministry of Economy and Finance, aims to reduce reliance on foreign currencies like the U.S. dollar, minimize exchange rate risks, and improve transaction efficiency between the two nations.
This new agreement builds on a memorandum of understanding signed in May 2023 and an operational framework agreement finalized in June 2024.
Set to take effect on September 30, 2024, the framework allows for direct currency transactions, eliminating the need for conversions into foreign currencies.
Erwin Haryono, head of Bank Indonesia’s department of communication, highlighted the significance of the move, stating, “The implementation of the LCT framework between Indonesia and South Korea would mark a crucial achievement in the two countries’ financial cooperation ties.”
The LCT framework designates several banks in both countries as appointed cross-currency dealers (ACCDs), enabling them to directly quote and trade in rupiah and won.
In Indonesia, designated ACCD banks include Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank Central Asia, among others.
Meanwhile, in South Korea, ACCD banks consist of Woori Bank, KEB Hana Bank Seoul, Shinhan Bank Seoul, and others.
These banks will play a pivotal role in supporting the framework by facilitating transactions in their respective local currencies.
By allowing trade to occur directly in rupiah and won, the agreement is expected to promote increased bilateral trade and strengthen economic ties between Indonesia and South Korea.
The move represents a step towards enhancing financial cooperation and reducing the risks associated with currency exchange, marking a significant development in the economic relationship between the two countries.