Indonesia’s upgraded Yuan-Rupiah currency pact with China is not just a diplomatic milestone—it is a practical playbook for businesses and traders navigating a rapidly changing financial landscape. EBC Financial Group (EBC) breaks down how the Local Currency Settlement (LCS) framework, sectoral agreements, and the broader push for de-dollarisation offer actionable insights for managing forex risk, optimising cross-border transactions, and building resilience in regional trade.
1. Understanding Local Currency Settlement (LCS): Practical Advantages
Lesson:
The LCS framework allows Indonesian and Chinese businesses to settle trade, investment, and even capital account transactions directly in Rupiah or Yuan, bypassing the US dollar. This reduces exposure to USD volatility, lowers transaction costs, and speeds up settlement times.
Actionable Tip:
- For exporters/importers: Negotiate contracts in local currencies where possible. This minimises conversion fees and shields your margins from sudden swings in USD/IDR or USD/CNY rates.
- For finance teams: Work with banks that support LCS to streamline payment processes and improve cash flow predictability.
2. Managing Forex Risks in a De-Dollarising World
Lesson:
With 5.3% of Indonesia’s reserves already in Yuan, Bank Indonesia (BI) now has more flexibility to adjust monetary policy without destabilising the Rupiah. For businesses, this means reduced risk of abrupt currency shocks tied to US Federal Reserve decisions.
Actionable Tip:
- For treasury and risk managers: Diversify your currency exposures. Consider holding working capital in both Rupiah and Yuan if you have ongoing trade with China.
- For traders: Monitor LCS-related news and policy updates. Shifts in local currency settlement volumes can signal changes in forex volatility and potential trading opportunities.
3. Sectoral Opportunities: Trade, Tourism, and Supply Chains
Lesson:
The pact is underpinned by sectoral agreements, including a USD5 billion industrial park project and streamlined tourism flows expected to bring nearly 2 million Chinese visitors to Indonesia in 2025. These moves boost job creation and open new supply chain and consumer market opportunities.
Actionable Tip:
- For businesses in manufacturing, logistics, or tourism: Position your services to support cross-border trade and travel. Accepting payments in Yuan or Rupiah can make your offerings more attractive to Chinese partners and tourists.
- For commodity exporters: Take advantage of LCS to settle large contracts in Yuan, especially for key exports like palm oil and nickel, reducing reliance on the dollar and improving pricing power.
4. De-Dollarisation: What It Means for Regional Trade
Lesson:
Indonesia’s LCS pact is part of a broader ASEAN movement towards monetary diversification. As China-ASEAN trade grows (up 9.2% year-on-year in early 2025), more regional economies are exploring alternatives to the dollar for trade and investment.
Actionable Tip:
- For regional businesses: Stay informed about LCS and similar frameworks in neighbouring countries. Early adoption can give you a competitive edge in cross-border deals.
- For traders: Watch for policy shifts at ASEAN summits and major trade agreements—these can trigger sector-specific rallies or currency moves.
5. Strategic Funding and Policy Buffers
Lesson:
By expanding Yuan use, Indonesia gains access to BRICS+ funding and New Development Bank (NDB) infrastructure loans, supporting President Prabowo’s USD20 billion development agenda while reducing reliance on dollar-denominated debt.
Actionable Tip:
- For corporates and project sponsors: Explore financing options through BRICS+ and NDB channels if your projects align with Indonesia’s infrastructure priorities.
- For market analysts: Track reserve composition and LCS volumes for clues about future policy moves and macroeconomic stability.
Final Thought
Indonesia’s Yuan-Rupiah pact is a working model for emerging markets seeking resilience through currency diversification and regional cooperation. By leveraging local currency settlements, managing forex risk, and embracing sectoral opportunities, businesses and traders can position themselves for success in a de-dollarising Asia.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Mengumpul
