The Reserve Bank of India (RBI) and the Bank Indonesia (BI) have signed a Memorandum of Understanding (MoU) to promote the use of local currencies for bilateral transactions. The MoU was signed by RBI Governor Shaktikanta Das and BI Governor Perry Warjiyo in Mumbai on March 7, 2024.
Benefits of local currency use
The MoU establishes a framework to facilitate cross-border transactions between the two countries using their native currencies, the Indian rupee (INR) and the Indonesian rupiah (IDR). This will enable exporters and importers to invoice and pay in their respective domestic currencies, reducing costs and settlement time for transactions. The MoU also aims to develop an INR-IDR foreign exchange market, which will deepen financial integration and strengthen economic relations between the two countries.
Scope of the MoU
The MoU covers all current account transactions, permissible capital account transactions and any other economic and financial transactions as agreed upon by both countries. The RBI said that the use of local currencies would optimise costs and settlement time for transactions.
Background and context
The MoU is India’s second such local currency trade agreement after the UAE. It is expected to boost trade and investment flows between India and Indonesia, which are among the largest economies in Asia. According to RBI data, bilateral trade between India and Indonesia stood at $16.6 billion in 2023-24, while foreign direct investment from Indonesia to India was $1.2 billion in the same period.
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