Charting a New Course: Indonesia and India’s De-dollarisation Agenda

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de-dollarisation in indonesia and india

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.

The Concept of De-dollarisation

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:

  1. Challenging US Dollar Dominance: Nations such as Brazil, China, and Indonesia are increasingly conducting trade using their local currencies. This shift is part of a broader trend to challenge the dominance of the US dollar, which has been the primary reserve currency since the post-WWII Bretton Woods system.
  2. Financial Autonomy and Stability: By reducing reliance on the US dollar, countries aim to gain greater monetary autonomy and mitigate the risks associated with currency fluctuations. This de-dollarisation can lead to improved financial stability and less vulnerability to external economic pressures, such as US sanctions.
  3. Global Financial System Diversification: The movement towards de-dollarisation is driven by the desire to counter American hegemony, secure financial autonomy, and promote a more diversified, resilient global financial system. Although de-dollarisation can involve short-term costs like heightened market volatility, the long-term benefits include a more balanced economic standing on the global stage. The Maju Indo-India initiative is a testament to the growing collaboration between Indonesia and India, demonstrating how de-dollarisation can foster stronger bilateral relations and benefit not just businesses but also the broader population, including middle to low-income families.

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Global Perspective and the Future of De-dollarisation

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.

Impact on Trade and Financial Integration

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:

  • Linking Fast Payment Systems: By connecting India’s Unified Payments Interface (#UPI) with Indonesia’s payment system, transactions become more efficient, fostering smoother trade and financial exchanges between the two nations.
  • Currency Risk and Sovereign Risk: While reducing reliance on the dollar mitigates certain risks, it can also introduce new challenges such as increased currency and sovereign risks, which may arise from government actions or unsustainable fiscal positions.
  • Seigniorage Rights: Adopting another nation’s currency as legal tender could mean the loss of seigniorage rights for a country. The implications of this include a reduction in the monetary authority’s ability to influence the economy through the creation of currency. This new start between Indo-India initiative exemplifies how de-dollarisation can elevate the economic partnership benefiting not only businesses and entrepreneurs but also providing tangible advantages not only to the businesses (especially SMEs) but also to middle and lower-income families in both countries.

Strengthening Bilateral Relations and Regional 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:

  • Financial Stability: By engaging in LCT, #ASEAN countries hope to achieve greater financial stability and exchange rate stability, which is particularly beneficial for local small and medium-sized enterprises (SMEs).
  • Regional Integration: The establishment of an ASEAN Local Currency Transaction Framework and the development of a cross-border digital payment system are steps towards deeper regional financial integration.
  • Value Chain Strength: Strengthening regional value chains through de-dollarisation can lead to more robust economic ties between ASEAN countries, fostering a supportive environment for businesses and potentially leading to economic benefits for all socioeconomic classes. India’s approach, known as ‘rupeefication’, aims to internationalise the INR, allowing exporters to limit exchange rate risk and the public sector to issue international debt denominated in #INR. While there are challenges, such as potential early-stage exchange rate fluctuations and the difficulty of replacing the US dollar as the dominant currency, the long-term prospects of de-dollarisation could be transformative for the region.

Impact on the Dollar-Dominated Global Market

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:

  • Shifting Power Balance: De-dollarisation could alter the economic hierarchy, redistributing power among nations and potentially reshaping global markets.
  • Currency Market Changes: A decrease in the demand for dollars due to de-dollarisation may lead to a fall in the dollar’s value and increase exchange rate volatility, affecting institutional, investor, and corporate strategies.
  • Oil Market Indicators: The trend of conducting oil transactions in currencies other than the dollar, such as the renminbi, hints at the gradual shift away from dollar dependency in critical global markets. These changes underscore the potential for countries to gain economic independence, stabilise exchange rates, diversify risks, and strengthen geopolitical alliances, ultimately benefiting a wider spectrum of society, including middle to low-income families.

The Essence of the BI-RBI Agreement

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:

  • Bilateral Trade Enhancement: The MoU is designed to streamline cross-border transactions, reducing the dependence on third-party currencies which can be more costly and less efficient.
  • Comprehensive Coverage: The agreement encompasses all current and permissible capital account transactions, along with other financial activities mutually agreed upon, paving the way for a broad economic engagement between India and Indonesia.
  • Incremental Implementation: Both nations have agreed to a gradual approach to local currency settlement, ensuring a smooth transition and minimising potential market disruptions.
  • Information Exchange and Cooperation: The MoU includes clauses for sharing information and mutual cooperation to promote local currency use in trade and investment, reflecting a deepening bilateral financial relationship. The collaboration is also a reflection of a larger global trend towards de-dollarisation, as identified by J.P. Morgan, suggesting a shift in the dynamics of international trade and finance. By optimising transaction costs and settlement times, the RBI-BI partnership not only strengthens economic ties but also contributes to the stability and growth of both economies, fostering benefits that extend beyond businesses to the broader society in both countries.

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Economic Advantages for Indonesia and India

  • Efficiency in Transactions: By conducting trade using their own currencies, Indonesia and India bypass the need to exchange US dollars, streamlining the process and potentially reducing costs associated with currency conversion.
  • Enhanced Resiliency: Indonesia fortifies its economy against global financial crises by not being overly reliant on the US dollar. This diversification of currency usage in international transactions provides a protective buffer.
  • Fiscal Health Benefits: Both countries can enjoy a healthier payment balance and fiscal stability, particularly beneficial when the US dollar’s value is in decline and their local currencies remain stable.
  • Unlocking Economic Potential: India’s large population and increasing consumer demand present a vast economic potential. By facilitating easier trade with Indonesia, both nations can tap into new markets and growth opportunities.
  • Gate opener for a bunch of professional opportunities: This means a lot for all – especially – professionals like the members of The Institute of Chartered Accountants of India The Institute of Company Secretaries of India and Institut Akuntan Publik Indonesia to empower the economy of both the countries.


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. 

About the Author:

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.

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