RI-China Trade Hits US$9 Billion via LCT, Is the Dollar Being Displaced?

In facing pressure on the rupiah exchange rate, Bank Indonesia (BI) is not solely relying on foreign exchange reserve instruments. The central bank is now also utilising a new policy instrument, namely Local Currency Transaction (LCT).

According to BI, LCT is a scheme for settling cross-border transactions (exports, imports, investments, and other services) conducted bilaterally using the local currencies of each respective country. This eliminates the need to convert currencies to US dollars first.

Deputy Governor of Bank Indonesia Destry Damayanti explained that LCT has been implemented with nine partner countries, namely Malaysia, Thailand, Singapore, the Philippines, Vietnam, Laos, Brunei Darussalam, Japan, and South Korea.

Destry noted that LCT growth has been particularly rapid with China and Japan. “We at BI facilitate spot transactions in yuan or yen against the rupiah. They (investors and traders) can obtain the yuan and yen exchange rates domestically. Moreover, trade with China using LCT has reached US$9 billion as of May,” Destry stated at the 2026 Investment Forum on Wednesday.

Destry is confident that if the LCT mechanism can be optimised, demand for the US dollar will decrease. She added that these strategic steps will be socialised together with the Chinese central bank to deepen the foreign exchange market beyond the dollar. “If we can manage this, it could have a positive impact on the economy,” she said.