De-dollarisation signifies a strategic shift for countries like #Indonesia and #India, moving towards using local currencies for trade (LCT) instead of relying on the US dollar. #BankIndonesia, the nation’s central bank, has been proactive in establishing agreements that prioritize the Rupiah in bilateral transactions, – especially between #India-Indonesia – reflecting an effort to build economic resilience and strengthen the national economy. This financial pivot is poised to enhance bilateral relations between Indonesia and India, as they leverage local currencies in their trade agreements, thus promising benefits not just for businesses but also for the wider populations in both emerging markets. This Maju Indo-India initiative encapsulates this journey from “Good to Great” for both nations, heralding a new era of economic cooperation.
De-dollarisation is the strategic move to diminish the #US dollar’s influence on the global stage, with several countries, including Indonesia and India, taking significant steps towards this goal. Here’s a closer look at the concept:
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While de-dollarisation may not happen rapidly due to the entrenched advantages of a ubiquitous currency like the US dollar, a gradual shift is underway. The dollar’s dominance in transactions is strong, yet its share in foreign exchange reserves has decreased to a historic low. This suggests a subtle yet significant move towards diversified reserves, with central banks, including those of China and Russia, exploring alternatives and adding gold to their reserves. The renminbi’s internationalisation efforts continue, albeit with a small global footprint, signifying the complex journey towards a multi-currency system. The future of de-dollarisation hinges on various factors, such as political stability and economic growth, with technology playing a critical role. Positive developments outside the US could enhance the credibility of alternative currencies, potentially eroding the dollar’s status. However, any transition away from the dollar would require a robust economy, deep financial markets, and sound policy frameworks to support an alternative reserve currency. As countries navigate this transition, they must balance the potential benefits against the risks, including currency volatility that could affect trade and investment. The internationalisation of currencies like the Euro and Chinese Yuan is tied to de-dollarisation, which could lead to a more balanced and stable global financial system. This shift could have far-reaching implications, possibly leading to a more multipolar world economy.
India and Indonesia’s move to trade in their local currencies is a significant step towards de-dollarisation, as it reduces dependency on the #USD and promotes the use of the #Rupee and #Rupiah in bilateral trade. This initiative can potentially lower transaction costs and safeguard against currency fluctuations. Here are some key impacts on trade and financial integration:
ASEAN nations, including Indonesia, are actively pursuing de-dollarisation by signing agreements to use local currencies for bilateral trade, aiming to reduce reliance on the US dollar and enhance regional collaboration. This move towards local currency transactions (LCT) is expected to bring several advantages:
The U.S. dollar’s status as the world’s primary reserve currency has been a cornerstone of international trade, but recent geopolitical shifts are prompting a reevaluation of this dynamic. As nations like Indonesia and India move towards de-dollarisation, the implications for the dollar-dominated global market are profound:
On February 23, 2024, the Reserve Bank of India (RBI) and Central Bank of Indonesia signed a pivotal Memorandum of Understanding (MoU), marking a significant stride in economic collaboration between the two nations. The agreement, championed by RBI Governor Bpk. Shaktikanta Das and BI Governor Bpk. Perry Warjiyo, underscores a mutual commitment to enhancing trade and investment by facilitating transactions in local currencies, the Indian Rupee (INR) and the Indonesian Rupiah (IDR). This MoU is set to catalyze a transition from traditional dollar-reliant trade to a more autonomous financial framework, fostering an environment where businesses, as well as middle to low-income families, stand to gain. Key Aspects of the BI-RBI Agreement:
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Q: What is the purpose of Indonesia’s De-dollarization task force?
A: Indonesia has established a “de-dollarisation” task force aimed at encouraging cross-border transactions using local currencies with its regional partners. This initiative is part of a broader movement in Southeast Asia to diminish reliance on the US dollar.
Q: Can you explain the process of De-dollarisation?
A: De-dollarisation refers to the process of significantly reducing the use of the US dollar in international trade and finance. This leads to a decrease in the demand for the US dollar by nations, institutions, and corporations.
Q: Why is the de-dollarization of the global economy significant?
A: The de-dollarisation of the global economy is important because it allows countries to have more control over their monetary policies. By lessening their dependency on the US dollar, countries gain the ability to tailor their interest rates and money supply management to better suit their own economic needs and objectives.
Q: Which countries are attempting to diminish the value of the US dollar in international trade?
A: A number of countries are actively working to minimise the US dollar’s dominance in international trade. Nations like India, China, Brazil, Malaysia, and Bolivia are exploring ways to establish trade mechanisms that utilize alternative currencies instead of the US dollar.
A. Loganathan has CISA, CFE, ACA certifications and CRMA, alongside affiliations with FAIA and FIPA. As a Director at JCSS Indonesia, Loganathan brings extensive expertise in auditing, finance, and risk management.
