In an increasingly fragmented world, the economic battle is no longer\nsolely determined by the size of foreign exchange reserves or high\neconomic growth. Investor confidence is now more influenced by a\ncountry\u2019s ability to maintain stability, manage risk, and build an\neconomic system resilient to global shocks. It is within this context\nthat strengthening the rupiah takes on a meaning far beyond mere\nmovements in the foreign exchange market.<\/p>\n
Indonesia is a country with relatively strong economic foundations.\nEconomic growth has been maintained amidst a global slowdown, inflation\nremains within the target range, and the financial sector is showing\nimproved resilience. However, as an open economy, Indonesia is not\nentirely immune to the impact of external turmoil. Rupiah exchange rate\nfluctuations are still heavily influenced by shifts in global sentiment,\nparticularly when demand for the US dollar as a safe haven currency\nincreases. This condition ultimately raises international trade\ntransaction costs, increases exchange rate risk, and forces businesses\nto bear higher hedging costs.<\/p>\n
This phenomenon is not unique to Indonesia. Barry Eichengreen (2011)\nexplained that the dominance of the US dollar in the international\nfinancial system persists due to network externalities. The more\neconomic actors use the dollar in trade and investment, the greater the\nincentive for others to do the same. In other words, dollar dominance is\ndetermined not only by the strength of the US economy but also by the\nformation of a usage network that has been built over decades.\nTherefore, efforts to strengthen the use of local currencies in\ninternational transactions should not be interpreted as a form of\n\u2018resistance\u2019 against the dollar, but rather as a diversification\nstrategy to strengthen national economic resilience.<\/p>\n
This view aligns with the findings of Gita Gopinath (2022) from the\nInternational Monetary Fund (IMF) regarding the concept of Dominant\nCurrency Pricing. This theory explains that most world trade is still\npriced in US dollars, so changes in the dollar exchange rate have a far\ngreater influence on international trade prices than changes in the\ndomestic currencies of individual countries. Consequently, when the US\ndollar strengthens, import costs rise, inflationary pressures increase,\nand the policy space for developing countries becomes increasingly\nlimited. For countries like Indonesia, reducing vulnerability to these\nshocks is a crucial part of the strategy to maintain long-term economic\nstability.<\/p>\n
Herein lies the growing relevance of developing Local Currency\nTransactions (LCT). LCT is not a policy aimed at replacing the role of\nthe US dollar in the global payment system. Instead, this policy\nprovides a more efficient alternative for bilateral transactions using\nlocal currencies between Indonesia and its partner countries. Thus,\nbusinesses have a wider choice in conducting trade and investment\ntransactions without always having to rely on a third-country currency.\nLCT will have the greatest impact if combined with an industrial\ndownstreaming strategy, so that rupiah stability not only maintains the\nexchange rate but also increases the added value of exports.<\/p>\n
Indonesia\u2019s steps in developing LCT show quite significant progress.\nSince its first implementation in 2018, this cooperation has been\ncontinuously expanded to include Malaysia, Thailand, Japan, China, South\nKorea, and the United Arab Emirates, whilst further implementation with\nSingapore, India, and trilateral cooperation with Hong Kong is being\nprepared. Domestically, 27 Appointed Cross Currency Dealers (ACCD) have\nbeen designated to facilitate transactions using local currencies,\nmaking the institutional infrastructure increasingly ready to support\nthe policy\u2019s implementation. Regulatory support is also continuously\nstrengthened through various refinements to Bank Indonesia Board of\nGovernors Regulations as a foundation of legal certainty for the\nbusiness world. All these developments show that Indonesia is not\nreacting to global dynamics momentarily, but is building a stronger\ninstitutional foundation for the future international transaction\nsystem.<\/p>\n
The development of LCT implementation is also reflected in its\nincreased utilisation by economic actors. Bank Indonesia data (2026)\nshows that the value of LCT transactions has increased very rapidly,\nfrom approximately USD 348 million in 2018 to USD 16.28 billion in 2024,\nand has reached USD 32.90 billion up to May 2026. In the same period,\nthe number of users grew from just 101 actors to more than 16,000 users,\nreflecting the growing confidence of the business world in local\ncurrency-based transaction mechanisms. This increase originates not only\nfrom the trade sector but also involves the manufacturing, energy,\nmining, automotive, transportation, financial services, and\ndownstreaming sectors, which are national development priorities. These\nfigures show that LCT has moved from the socialisation stage towards an\nincreasingly mature adoption phase in international business\npractice.<\/p>\n
Although the development of LCT shows a promising direction, its\nsuccess should not be measured solely by the size of transaction values\nor the increase in the number of users. The more important essence is\nhow this policy can strengthen investor confidence in Indonesia\u2019s\neconomic fundamentals. In a modern economy, investment decisions are not\nonly based on short-term profit projections but also on the perception\nof a country\u2019s ability to manage systemic risk.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/local-currency-transaction-a-cure-for-the-rupiahs-weakness-1782654704", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }