Bank Indonesia Expands FX Operations to CNY and JPY

Strengthening Local Currency Transactions

Bank Indonesia (BI) is taking significant steps to enhance its foreign exchange monetary operations by introducing instruments denominated in Chinese Yuan (CNY) and Japanese Yen (JPY). This strategic move aims to reduce the pressure on the US dollar in domestic transactions and strengthen the local FX market. According to Senior Deputy Governor Destry Damayanti, this expansion will improve the effectiveness of Local Currency Transactions (LCT) which have shown remarkable growth.

Growing LCT Transactions with China

The LCT mechanism has demonstrated substantial growth, with transactions reaching approximately US$1 billion per month in dealings with China. Despite this significant volume, the demand for CNY in the domestic market has not been fully met, creating an opportunity for BI to introduce CNY-denominated instruments. This development will enable businesses to conduct CNY transactions directly without the need to first convert to USD, thereby reducing the pressure on the US dollar.

Enhancing Market Efficiency

The introduction of CNY and JPY instruments is part of BI's broader strategy to develop the domestic FX market. By expanding the range of available instruments, including spot, forward, and swap transactions in these currencies, BI aims to create a more efficient and robust FX market. This move is expected to support trade and investment activities between Indonesia and its major trading partners, particularly China and Japan.

Positive Impact on Rupiah

BI is optimistic that these developments will have a positive impact on the stability and strength of the Indonesian Rupiah (IDR) in the long term. By reducing dependence on the USD and promoting the use of local currencies in international transactions, BI is working towards creating a more resilient and diversified FX market.