Affected transactions

Under the regulation, individuals and companies must use the rupiah for all cash and non-cash transactions in Indonesia. The definition of 'transaction' extends to the use of cheques, giro slips, credit cards, debit cards, ATM cards and electronic money, including:

payment transactions;

other means of settlement of obligations on monetary terms; and

other financial transactions.

Exceptions

The obligation to use the rupiah does not apply to the following transactions:

certain transactions with respect to the state budget, including:

payment of foreign debts;

payment of domestic debts in foreign currencies;

foreign expenditures;

foreign capital expenditures; and

state revenues from sovereign bond sales in foreign currencies;

the acceptance from abroad or provision of offshore grants for which either the recipient or the beneficiary must be domiciled abroad;

international trade transactions, which comprise:

the export and import of goods to and from the Indonesian customs zone (however, transactions for ancillary activities such as berthing, container loading and unloading, temporary container storage and aircraft parking are not categorised as international trade and the use of the rupiah is thus compulsory); and

cross-border trade services on the basis of cross-border supply and consumption abroad;

savings and bank deposits in foreign currencies; and

international financing transactions.

Foreign currencies may be also used in transactions that are governed by law, such as:

foreign exchange business conducted by banks under banking and Sharia banking laws;

primary and secondary market transactions of negotiable instruments in foreign currencies issued by the government under sovereign bonds and Islamic bond laws; and

other foreign currency transactions made by virtue of the laws that govern foreign currency transactions (eg, the Bank Indonesia Law, investment law and export finance law).

In addition, activities related to money changing and the carrying of foreign exchange bank notes in and out of Indonesia are also exempt from the regulation.

Prohibitions

Parties are prohibited from refusing to accept funds in rupiah for any payment or settlement of obligations that must be made in rupiah, or any other financial transaction in Indonesia. However, parties may refuse to accept rupiah:

in cash transactions where doubt arises as to the genuineness of the rupiah submitted; and

where the payment or settlement of obligations in foreign currency has been agreed in writing (this applies only to transactions that are specifically exempt under the regulation as noted above and strategic infrastructure projects(1) approved by Bank Indonesia).

Price tagging in rupiah

The regulation provides that business operators must price-tag goods and services in rupiah only.(2)

Reporting

Bank Indonesia is authorised to request reports, descriptions and data from any party involved in the use of rupiah and the obligatory rupiah price-tagging of goods and services.

Enforcement coordination

In enforcing the mandatory use of rupiah under the regulation, Bank Indonesia may coordinate and cooperate with other parties, such as law enforcement officers and the competent authorities.

Penalties

Any person or company that fails to use the rupiah for payment transactions, obligations that must be settled in monetary terms and other financial transactions, or refuses to accept the mandatory use of the rupiah, will be subject to imprisonment of up to one year or a fine of up to Rp200 million, as provided under Article 33 of the Currency Law.

Violations of the mandatory use of the rupiah in non-cash transactions may incur the following administrative penalties:

a written warning;

obligatory payment (ie, 1% of the transaction value, not to exceed Rp1 billion); and/or

prohibition from engaging in further payment transactions.

Failure to meet the rupiah price-tagging obligation will be penalised by written warnings.

In addition to administrative penalties, Bank Indonesia may recommend that the competent authorities take measures within their area of competence, such as revoking licences or suspending offenders' business activities.

Transitional period

Written agreements on payment or settlement in foreign currencies for non-cash transactions (other than exempt agreements) entered into before July 1 2015 remain valid until their expiration. Any extension or amendment to such agreements must comply with the regulation.

Uncertainties

There are a number of issues on which the regulation is less clear than might have been hoped, including:

when exactly a transaction is considered to be effected 'in Indonesia' (which is particularly relevant for borderless payments made online); and

whether written agreements referred to in the "Transitional period" section above can be used to effectively opt out of the regulation with regard to non-cash transactions.