Bank Indonesia Governor Perry Warjiyo, said that the LCT agreement is set to be signed on May 2023.

"On early May 2023 we will sign an agreement with South Korea concerning LCT," Perry said.

The agreement will be signed as part of an effort to reduce dependency on the US  Dollar. Currently, Indonesia had signed LCT agreements with Thailand, Malaysia, Japan, and China.

Bank Indonesia Senior Deputy Governor Destry Damayanti, said that Indonesia continues to record an increase in LCT transactions with the four countries mentioned above.

For example, LCT transactions between Indonesia and Japan had reached an equal to US$ 957 million as of February 2023. The number increased significantly compared to the average recorded in 2022, which was US$ 350 million per month.

To further encourage currency diversification, Indonesia is currently exploring cooperation possibilities with India and Saudi Arabia.

ASEAN initiatives

Deputy Governor of Bank Indonesia Dodi Budi Waluyo, explained that encouraging local currency transactions (LCT) is part of the steps taken by ASEAN countries to reduce their dependency on the US Dollar.

"Under current circumstances and as an effort to reduce the dependency on the use of US Dollar, or diversified currency, we will focus on LCT scheme and other attractive supporting policies and in accordance with the market mechanism," Dodi explained.

As part of the ASEAN 2023 Chairmanship, Bank Indonesia has been focusing on pushing for the creation of a framework for local currency transactions to encourage the use of local currency within the ASEAN territory.

"Hopefully, by the end of Indonesian chairmanship in ASEAN, this can be achieved along with the establishment of a task force that will accelerate the policy implementation," Dodi said.

The establishment of a framework on LCT is expected to be able to create a financial security network for international financial transactions and to reduce financial vulnerability caused by unstable global economic conditions.