The central banks of Indonesia and South Korea have agreed to promote the wider use of local currencies in bilateral transactions from 2024.

This latest initiative aligns with the financial integration efforts of countries in the region to facilitate the wider use of local currencies, and reinforces the trend of de-dollarization.

The latest currency pact was signed off on the sidelines of a recent high-level bilateral meeting between the countries in Indonesia. During the meeting, Bank Indonesia (BI) and the Bank of Korea (BOK) agreed to establish the operational guidelines for the local currency transactions framework as a first step.

The move follows the signing of a memorandum of understanding on a cooperation framework to promote bilateral transactions in local currency by both central banks in May 2023.

The framework is scheduled to go live in 2024 and will enable banks in Indonesia and South Korea to quote the local currency pair, rupiah and won, allowing businesses and other users to reduce their exposure to exchange rate risks and other costs associated with bilateral transactions.

The central banks say the interchange will ultimately contribute to promoting trade between Indonesia and South Korea, as well as deepening the financial markets in local currencies in both countries.

"Indonesia, with its vast territory and population base, plays a crucial role in the global supply chain of advanced sectors such as batteries and electric vehicles. The interest of South Korean businesses in Indonesia is also steadily growing,” says BOK governor Rhee Chang Yong.

“Against this backdrop, the implementation of the LCT framework, which promotes the use of local currencies in bilateral trade transactions, is expected to positively impact economic development through promoting bilateral trade and also wider use of local currency, to achieve this objective, both central banks pledge to exert their utmost efforts."