Indonesia, China Ink Deals to Boost Local Currency Use

Indonesia and China on Sunday agreed to promote the use of their respective national currencies in bilateral trade, marking a significant step toward reducing dependency on the US dollar. The agreement was formalized through a memorandum of understanding (MoU) signed by Bank Indonesia and the People's Bank of China.

Indonesia and China have taken a significant step towards reducing their dependency on the US dollar in bilateral trade. On Sunday, both countries signed a memorandum of understanding (MoU) on a framework for bilateral transactions in local currencies, marking a substantial shift in their economic cooperation. The agreement was formalized during a ceremony witnessed by Chinese President Li and Indonesian President Prabowo Subianto [1].

The MOU between Bank Indonesia and the People's Bank of China is part of a broader effort to enhance cooperation between the two nations. The agreement will focus on boosting tourism and agricultural exports, while also facilitating investments between wealth funds China Investment Corporation and Danantara Indonesia [1]. This move comes as China seeks to strengthen its ties with Southeast Asia amidst intensifying trade tensions with the United States [1].

The agreement follows an inaugural 2+2 dialogue last month between Chinese and Indonesian foreign and defense ministers, which was seen as part of Beijing's strategy to court the wider regional bloc [1]. This visit by President Li to Jakarta is also part of a series of high-level engagements aimed at fostering closer economic ties with Southeast Asian countries.

The decision to promote the use of local currencies in bilateral trade is a strategic move that could have significant implications for global financial dynamics. By reducing reliance on the US dollar, both countries can potentially mitigate the risks associated with currency fluctuations and hedge against the impact of US economic policies.

Additionally, Chinese and Indonesian officials signed MOUs on economic, industry, and supply chain development policies, as well as agreed to further work on health and media sectors [1]. These agreements reflect a comprehensive approach to strengthening economic ties, which could lead to increased trade and investment opportunities for both nations.

President Prabowo has visited China twice since winning the presidency, with one of those trips resulting in more than US$10 billion (RM42.3 billion) in business deals [1]. China is Indonesia's largest trading partner and a key investor in the country's commodity and infrastructure sectors, including the Jakarta-Bandung high-speed rail and nickel processing.

This agreement is a significant milestone in the ongoing efforts to diversify global trade and investment patterns. As trade tensions between the United States and China continue to evolve, countries like Indonesia and China are exploring alternative pathways to maintain economic stability and growth.

References:
[1] https://theedgemalaysia.com/node/756595