Currencies, Emerging Markets

De-Dollarization: Indonesia’s Central Bank Bans Foreign Currencies In Domestic Transactions

Indonesia will ban the use of foreign currencies in its domestic transactions in a move which has drawn criticism, according to a report from The Wall Street Journal (WSJ).

Indonesian Rupiah

Indonesia will ban the use of foreign currencies in its domestic transactions, according to The Wall Street Journal (WSJ).

According to the WSJ, Indonesia’s Central Bank has pushed through regulations that will prohibit using foreign currencies, including the U.S. dollar, from being used in its domestic transactions, as the nation is trying to tackle losses from its national currency, the rupiah.

Indonesia’s new regulation is set to take effect on Wednesday and has drawn criticism as this would bring increased operating costs and other associated risks among businesses — such as mining, oil and gas, manufacturing, and property sectors — that rely heavily with the bulk of their transacts in U.S. dollars as currency to hedge against the volatile rupiah, which is a historically volatile currency that has been falling over the last four years.

The WSJ points out that trust in the rupiah has been fragile ever since the Asian financial crisis in the late 1990s, when its value plunged and Indonesia was forced to be assisted by the International Monetary Fund (IMF).

So far this year, the rupiah has been one of Asia’s worst-performing currencies this year, falling around 7% versus the dollar.

The Central Bank of Indonesia says the ban against foreign currency usage in domestic transactions is aimed at reducing its reliance on the U.S. dollar and other foreign currencies to help mitigate against capital outflows.

The Central Bank said that transactions within the country in currencies other than rupiah amount to around $73 billion a year.

All goods and services prices will now need to be in rupiah terms, which will impact such prices for hotels, rents, professional services, etc., according to the report.

The WSJ highlights the fact that nearly 80% of office rents are paid using the U.S. dollar.

Companies operating in Indonesia are now fearful that they are going to be forced to bear the cost of the rupiah’s volatility and have not had enough time to prepare for new accounting mechanisms.

The new shift in government policy comes as newly elected President Joko Widodo’s administration struggles to gain investment to help fund much needed infrastructure projects as economic growth has fallen to a six-year low and as confidence in the current government’s ability to manage economic policy has slumped.

The move to ban foreign currencies in Indonesia’s domestic market, has been previously to an extent, with talk of banning the U.S. dollar, as a number of emerging and frontier market nations have either executed or have held talks on de-dollarization or banning foreign currencies.

In April, Russia proposed to Indonesia to switch to use their national currencies for trade settlements.


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow Us On Social Media

Google Translate

Like Us On Facebook

Our Discussion Groups

Facebook Group
LinkedIn Group

Follow EMerging Equity on

Our Social Media Readers


Get every new post delivered to your Inbox.

Join 271 other followers

%d bloggers like this: