RBI, Indonesia's central bank, signed local currency trade agreements.

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India and Indonesia Forge Currency Partnership: Boosting Trade and Financial Ties

Team FS

08/Mar/2024

India and Indonesia sign agreement for cross-border transactions in local currencies
Aimed at reducing dependence on US dollar and optimizing transaction costs
Strengthens bilateral cooperation and promotes trade between the two countries

In a significant move aimed at bolstering trade and financial ties, the Reserve Bank of India (RBI) and Indonesia's central bank have inked a pivotal agreement in Mumbai. This landmark memorandum of understanding (MoU) paves the way for facilitating cross-border transactions using local currencies, marking India's second such arrangement after the UAE.

The agreement, signed by RBI Governor Mr. Shaktikanta Das and Bank Indonesia Governor Mr. Perry Warjiyo, covers a wide spectrum of transactions including current account transactions, permissible capital account transactions, and other economic and financial transactions. This initiative allows exporters and importers from both nations to conduct transactions in their domestic currencies, thus fostering the development of a more robust foreign exchange market for these currencies while optimizing transaction costs.

This collaboration signifies a significant stride in strengthening bilateral cooperation between India and Indonesia. By promoting trade between the two countries and deepening financial integration, the agreement holds immense potential for economic growth and prosperity. Moreover, it aligns with a global trend where countries are seeking alternatives to the US dollar for trade settlements, particularly in light of geopolitical developments such as the West's sanctions on Russia.

The introduction of the INR trade settlement mechanism by the RBI in July 2022 further underscores India's strategic move to reduce dependence on the US dollar in international trade transactions. This initiative not only enhances the resilience of India's external trade and financial systems but also opens up new avenues for collaboration and partnership in the Indo-Pacific region and beyond.

Overall, the agreement between the RBI and Bank Indonesia marks a significant milestone in the journey towards greater economic cooperation and financial connectivity between India and Indonesia. As both countries harness the potential of cross-border transactions in local currencies, they pave the way for a more inclusive and sustainable model of economic development in the region.

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India and Indonesia Forge Currency Partnership: Boosting Trade and Financial Ties

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