Indonesia, China implement local currency settlement

Indonesia and China implemented a local currency settlement (LCS) agreement on Monday to make trade and direct investment between the two countries more efficient. The move comes nearly a year after Bank Indonesia (BI) and the People’s Bank of China (PBOC) inked a memorandum of understanding on the matter. BI reported on Monday that the mechanism was expected to benefit businesses as it would reduce transaction costs, provide alternative financing in local currencies for trade and direct investment, create more options for hedging and diversify currency exposure in cross-border transactions. “Expanding the use of the LCS is expected to support the rupiah’s stability by reducing dependence on certain currencies in the domestic foreign exchange market,” BI reported in a press release on Monday.