South Korea and Indonesia Partner to Promote Use of Local Currencies for Bilateral Transactions

In recent years, countries around the world have been looking to promote the use of their local currencies in international trade and finance. South Korea and Indonesia are two such nations that have been actively promoting the use of their currencies on the global stage. Both countries see this as a way to reduce their dependence on the US dollar and other major currencies, as well as to boost their economic growth.

South Korea has been making strides in promoting the use of the Korean won (KRW) in international transactions. The country has been pushing for greater use of the KRW in cross-border trade with China and Japan, as well as in the settlement of international oil transactions. Meanwhile, Indonesia has been promoting the use of the rupiah (IDR) in trade and investment with other countries in Southeast Asia, as well as with China and Japan.

This article will explore the efforts of South Korea and Indonesia to promote their local currencies on the global financial stage, and the potential benefits and challenges associated with these efforts.

KRW and IDR on The Financial Markets

The South Korean won (KRW) and Indonesian rupiah (IDR) have been facing various challenges in the global financial markets. While both countries have been actively promoting the use of their currencies in international transactions, the actual performance of their currencies on the forex markets has been mixed.

One of the biggest challenges facing the KRW and IDR is the volatility of their exchange rates. Both currencies have experienced significant fluctuations against major currencies such as the US dollar, euro, and Japanese yen, making it difficult for businesses and investors to plan and execute international transactions. For example, in August 2020, the KRW reached its highest level against the USD in over two years, but by January 2021 it had fallen to its lowest level in six months. Similarly, the IDR reached its weakest level against the USD in over two decades in March 2020, before rebounding in the latter half of the year.

Another challenge is the limited liquidity of the KRW and IDR in global forex markets. Compared to major currencies, such as the USD and euro, the trading volume of the KRW and IDR is relatively low, which makes it harder for investors to buy and sell these currencies in large quantities. This lack of liquidity can also make the exchange rates more volatile, as even small trades can have a big impact on the market.

Despite these challenges, both the KRW and IDR have shown some positive trends in recent years. For example, the KRW has been strengthening against the Japanese yen, which has made it more attractive for South Korean businesses to trade with Japan. Additionally, the KRW has been increasingly used as a settlement currency for international oil transactions, which has boosted demand for the currency. Meanwhile, the IDR has been gaining popularity as a settlement currency for trade and investment transactions with other Southeast Asian countries, as well as with China and Japan.

Overall, promoting the use of local currencies on the global financial stage is a long-term process that requires significant effort and investment. While the KRW and IDR face various challenges, their governments are committed to promoting the use of their currencies in international transactions. For example, South Korea has been expanding its network of currency swap agreements with other countries, which can help stabilize exchange rates and increase the liquidity of the KRW. Similarly, Indonesia has been implementing policies to encourage the use of the IDR in trade and investment transactions, such as by reducing the tax on foreign exchange transactions.

In conclusion, the performance of the KRW and IDR on the global financial markets is a mixed bag, with both currencies facing challenges and opportunities. However, with sustained effort and investment, these currencies may become more widely used in international transactions, which could bring significant benefits to their respective economies.

South Korea and Indonesia Are Trying to Promote Local Currencies

On Tuesday, there was an agreement between the central banks of South Korea and Indonesia to collaborate in promoting the use of their respective currencies for bilateral transactions.  These transactions include current account transactions and direct investments.

The collaboration between the central banks was officially declared in a statement where they disclosed that the alliance would enable interbank trading of the Korean won and the Indonesian rupiah through direct exchange rate quotation. This move is expected to assist businesses in lowering their transaction expenses while also decreasing their exposure to exchange rate volatility. The agreement was signed by the two central bank governors during a gathering of the ASEAN+3 Finance Ministers and Central Bank Governors Meeting held in Incheon, South Korea.

Promoting the use of local currencies on the global financial stage can bring several benefits to countries. Firstly, it can reduce their dependence on major currencies such as the US dollar, which can be subject to volatility and uncertainty. This, in turn, can reduce exposure to exchange rate risks and lower transaction costs for businesses engaged in international trade and investment. It can also enhance a country’s monetary independence and help stabilize its domestic economy.

The decision of South Korea and Indonesia to promote their local currencies is a step towards achieving these benefits. By cooperating to encourage the use of Korean won and Indonesian rupiah in bilateral transactions, the two countries are creating a market for their currencies and increasing their visibility on the global financial stage. This can enhance their liquidity and reduce the volatility of their exchange rates, making them more attractive to investors and businesses.

Additionally, the direct quotation of exchange rates between the Korean won and Indonesian rupiah during interbank trading will simplify cross-border transactions for businesses between the two countries. This can boost trade and investment flows, particularly in the Southeast Asian region, where both countries have significant economic interests.

Overall, promoting local currencies can help countries achieve greater monetary independence, reduce exposure to exchange rate risks, and lower transaction costs. The decision of South Korea and Indonesia to cooperate in promoting their currencies is a positive step towards achieving these goals. By creating a market for their currencies and increasing their visibility on the global financial stage, the two countries can enhance the performances of their currencies on the forex markets, attract more investors, and stimulate economic growth.