EBC on Why Indonesia's Currency Deal with China Is More Than a Simple Trade Agreement

In the intricate web of global commerce, Indonesia and China recently signed a currency pact during Premier Li Qiang's visit ahead of the ASEAN-GCC-China Summit. This agreement is more than just a trade deal — it signals Indonesia's evolving economic strategy amid shifting global pressures. At EBC, we are committing our efforts to analyse what this development means for Indonesia and the wider region.

Growing Trade Ties Set the Scene

Indonesia remains a key ASEAN partner to China, with bilateral trade hitting USD147.80 billion in 2024 — a 6.1% year-on-year rise. Forecasts expect this to exceed USD160 billion in 2025. The new pact was signed alongside other agreements covering tourism, media, public health, and infrastructure, reflecting a broad-based partnership.

The Significance of the Local Currency Settlement

Central to this progress is the upgraded Local Currency Settlement (LCS) agreement between Bank Indonesia and the People's Bank of China. This arrangement now includes capital account transactions in Rupiah and Yuan, a rare feature for emerging markets. This shift brings three major advantages: it eliminates the need for costly US dollar conversions in palm oil and nickel exports; it gives Bank Indonesia greater monetary flexibility since 5.3% of its reserves are in Yuan, enabling possible interest rate cuts without risking the Rupiah; and it opens access to New Development Bank funding, supporting President Prabowo's USD20 billion infrastructure programme.

David Barrett, CEO of EBC Financial Group (UK) Ltd, summarises: "This isn't just about cutting transaction fees—it's a recalibration of Indonesia's financial DNA. By enabling Yuan-backed trade and investment flows, BI is building a hedge against Fed policy shocks."

Expanding Economic and Social Collaboration

Beyond finance, Indonesia's cooperation with China extends into tourism and industry. Nearly 2 million Chinese tourists are expected in 2025, boosted by eased visa policies and improved payment systems. A USD5 billion investment will develop twin industrial parks in Fujian and the Batang Special Economic Zone, creating over 100,000 jobs.

Additional Memoranda of Understanding cover vaccine research and media collaboration between Antara and Xinhua agencies, strengthening people-to-people and institutional ties.

Regional Integration and Future Outlook

From January to April 2025, China-ASEAN trade reached 2.38 trillion Yuan (around USD330 billion), up 9.2% year-on-year. The China-ASEAN Free Trade Area 3.0 initiative promotes cooperation in digital and green sectors, paving the way for deeper regional integration.

The ASEAN-GCC-China Summit reinforced these goals, encouraging financial collaboration. Though not an explicit move away from the US dollar, it highlights a strategic rebalancing. Barrett notes, "Indonesia is crafting a blueprint for monetary diversification. The Local Currency Settlement (LCS) deal illustrates how mid-sized economies can reduce overreliance on a single dominant currency, balancing regional cohesion with global standards."

At EBC, we are committing our efforts to monitor and support this emerging framework as Indonesia positions itself at the forefront of economic evolution.

Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.