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2020-08-27

Bank Indonesia Regulation Number 22/12/PBI/2020 on Settlement for Bilateral Transactions Using Local Currencies Through Bank

Bank Indonesia issued Regulation Number 22/12/PBI/2020 to strengthen the framework for Local Currency Settlement (LCS) in bilateral transactions with partner countries, aiming to reduce dependency on the US dollar and mitigate economic vulnerability. The regulation establishes the criteria, appointment, and operational guidelines for Authorized Correspondent Currency Dealer (ACCD) Banks, detailing permitted financial activities such as account management, fund transfers, and financing in local currencies. It further mandates specific requirements for underlying transactions, direct quotation, open position limits, and reporting obligations to ensure compliance and stability within the LCS system effective from August 28, 2020.

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8/27/2020 12:00 AM

Judul Bank Indonesia Regulation Number 22/12/PBI/2020 on Settlement for Bilateral Transactions Using Local Currencies Through Bank

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Page Content SUMMARY OF BANK INDONESIA REGULATION Bank Indonesia Regulation Number 22/12/PBI/2020 on Settlement for Bilateral Transactions Using Local Currencies Through Bank Effective Date : 28 August 2020 Summary : I. Background USD domination in the domestic financial market remain very high reflected by the dominant use of USD in bilateral transactions between Indonesia and different countries. The high dependency on USD may affect the increasing vulnerability of Indonesia's economy to global shocks, which will eventually pose negative impacts on financial system stability and macroeconomy. To mitigate the risk, Bank Indonesia and the Bank Negara Malaysia, Bank of Thailand, and Japan Ministry of Finance have agreed on the implementation of cooperation framework of Local Currency Settlement (LCS). LCS Transactions in facilitating bilateral transactions between Indonesia and a partner country have shown positive results as shown in the increasing transaction volume, transaction frequency, and the number of LCS customers. To increase LCS transactions, Bank Indonesia and financial authority of partner countries have an initiative to strengthen ACCD LCS framework. With this mechanism strengthening, it is expected to give positive contributions on Bank Indonesia's efforts to maintain rupiah exchange rate stability. In addition, the use of local currency plays role in (i) encouraging diversification of currency exposure, (ii) potentially reducing trade costs resulting from direct quotation between local currencies, (iii) encouraging development of domestic financial market based on local currency, and (iv) increasing accesses (participants). II. Regulation Materials 1.Appointment of ACCD Bank Bank Indonesia and partner country's authority arrange ACCD Bank criteria and appoint ACCD Bank by considering the arranged criteria. Bank Indonesia and partner country's authority may terminate the appointment of ACCD Bank. 2.Financial Activities and Transactions by ACCD Bank a. For the purpose of LCS implementation, Indonesian ACCD Bank conduct: Financial activities; and Financial transactions. b. Financial activities conducted by Indonesian ACCD Bank for the purpose of LCS include: opening of Rupiah SNA and Partner's SNA; opening of Partner's Sub-SNA; managing the balance of Special Purpose Non-Resident Account and the balance of Sub-Special Purpose Non-Resident Account; fund transfer; and Financing. c. Financial Transactions which is conducted by Indonesian ACCD Bank for the purpose of LCS include today transactions (tod), tomorrow transactions (tom) and spot transactions as well as other transactions agreed by Bank Indonesia and partner country's authority. 3.Opening of Rupiah SNA and Partner's SNA Indonesian ACCD Bank may accept opening of Rupiah SNA and may conduct opening of SNA at partner's ACCD Bank. Indonesian ACCD Bank must monitor and ensure that the Rupiah SNA balance at Indonesian ACCD Bank does not exceed certain nominal amount at the end of the Day except with certain requirements. Indonesian ACCD Bank must monitor and ensure that the SNA balance at Partner's ACCD Bank does not exceed certain nominal amount at the end of the Day. Rupiah SNA will not be considered as a Bank's short-term offshore debt as referred to in Bank Indonesia provisions for bank's offshore debts. 4.Opening of Partner's Sub-SNA Indonesian ACCD Banks may accept the opening of Partner's Sub-SNA and need to assess compatibility of the profile and economic activities of Indonesian LCS Customer. Credit and debit in Partner's Sub-SNA balance must be conducted according to certain criteria. 5.Management of SNA and Sub-SNA Balance Indonesian ACCD Bank may manage SNA at partner's ACCD Bank balance through investment in financial assets in partner country's currency in a partner country, swap transactions, and conversion to different currencies. Indonesian ACCD Bank is prohibited to invest in the forms of certain instruments. Indonesian LCS Customer may invest Sub-SNA at partner's ACCD Bank balance in financial assets denominated in partner country's currency in a partner country in the forms of certain instruments. Indonesian ACCD Bank is prohibited from executing an order of investment in the balance of Sub-SNA at partner's ACCD Bank in the form of certain instruments. ACCD Bank may execute an order of cash withdrawal and cash deposit in a Sub-SNA at partner's ACCD Bank according to certain criteria. 6.Fund Transfer Indonesian ACCD Bank may transfer fund in rupiah between Rupiah SNA and/or between Rupiah SNA to Rupiah non- SNA. Cash settlement in rupiah may only be conducted in Indonesia. Indonesian ACCD Bank may transfer balance between Sub-SNA at partner's ACCD Bank according to certain criteria.

7.Financing Indonesian ACCD Bank may provide financing of trade and direct investment in a partner country's currency to Indonesian LCS Customer. The direct investment financing must be conducted by observing the relevant regulations on financing activities by banks and by implementing the prudential principle. Provision of fund in a partner country's currency may be conducted through swap transactions or direct borrowing. For the purpose of rupiah financing by a Partner Country's ACCD Bank, Indonesian ACCD Bank may conduct swap transactions and/or rupiah placement to a Partner Country's ACCD Bank. Direct borrowing term is prohibited to exceed 1 year and exceed the term of the Underlying Transaction. Direct borrowing will not be considered as a bank's short-term offshore debt as referred to in Bank Indonesia provisions for bank's offshore debts. 8.Financial Transactions Financial Transactions include spot, forward, swap and other transactions determined based on an agreement between BI and a partner country's authority. Indonesian ACCD Bank and other Indonesian ACCD Banks and/or partner country's ACCD Banks may conduct Financial Transactions for squaring position and/or liquidity management without Underlying Transaction. Indonesian ACCD Bank may conduct Financial Transactions with Indonesian LCS Customer, Indonesian non-ACCD Bank, and Partner Country's non-ACCD bank with Underlying Transaction. Financial Transaction adjustment may be conducted through rollover, early termination, or unwind/cancel up. Transactions may be settled through gross and netting fund transfer. Gross position of a swap transaction is prohibited from exceeding a certain amount at the end of the Day. 9.Underlying Transactions a. General Principles of Underlying Transactions Financing and Financial Transactions according to certain criteria is required to have Underlying Transactions proven by Underlying Transaction documents. The amount and tenure of financing and Financial Transactions are prohibited from exceeding the amount and tenure of Underlying Transactions. b. Types of Underlying Transactions Underlying Transactions for the purpose of LCS implementation may be in the form of current account transactions, direct investment activities, and other Underlying Transactions. ACCD Bank is prohibited from facilitating LCS customers beyond the scope of an Underlying Transaction. c. Underlying Transaction Documents Underlying Transaction documents may be firm commitment or anticipatory basis. The anticipatory basis document may use gross or net basis. 10. Direct Quotation Indonesian ACCD Bank is required to issue a direct quotation in partner country's currency against rupiah at fair price in the foreign exchange market and hittable. 11. Open Position of Transactions in a Partner Country's Currency against Rupiah and/or Foreign Currency Indonesian ACCD Bank may have an open position of transactions in a partner country's currency at the end of the Day for the purpose of LCS implementation and is prohibited from exceeding a certain amount at the end of the Day. 12. Reporting Indonesian ACCD Bank is required to set up and submit report and/or report correction for the purpose of LCS implementation to Bank Indonesia in a correct, complete, and punctual manner. In the event that Indonesian ACCD Bank experiences technical failure in their submission of report and/or report correction on the final submission report and/or report correction date, then the report and/or report correction will be submitted on the following Day after the technical failure is fixed. 13. Supervision Bank Indonesia supervises financial activities and Financial Transactions of Indonesian ACCD Bank for the purpose of LCS implementation, include: a. off-site supervision; and/or b. on-site supervision. 14. Effective date of Bank Indonesia Regulation This Regulation comes into force on 28 August 2020.

Lampiran Attachments

Lampiran 1 Bank Indonesia Regulation No.22/12/PBI/2020.pdf

Lampiran 2 FAQ Bank Indonesia Regulation No.22/12/PBI/2020.pdf

Lampiran 3

Lampiran 4

Lampiran 5

Lampiran 6

Lampiran 7

Lampiran 8

Lampiran 9

Lampiran 10

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Halaman ini terakhir diperbarui 10/18/2021 5:31 PM

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