China and Indonesia Enhance Financial Cooperation with New LCT Framework and QR Code Pilot
China and Indonesia Enhance Financial Cooperation with New LCT Framework and QR Code Pilot
China and Indonesia have taken a significant step towards strengthening their financial collaboration by launching a new framework for local currency transactions (LCT) and initiating a cross-border QR code connectivity pilot project. This development aims to enhance payment cooperation between the two nations and support the use of local currencies in trade and investment.
Expanding Local Currency Transactions
The newly introduced LCT framework marks an upgrade from a previously existing agreement, effectively expanding local currency settlements to encompass all balance of payment items. This enhancement is expected to promote the broader use of local currencies in bilateral trade and investment, as announced by the People’s Bank of China (PBOC) and Bank Indonesia (BI).
The initial local currency settlement framework was established in 2020, designed to facilitate account transactions and direct investment settlements using local currencies. In a memorandum of understanding signed in May, both countries agreed to upgrade this framework to the current LCT framework.
Launching the Cross-Border QR Code Connectivity Pilot
In addition to the LCT framework, China and Indonesia have embarked on a QR code generator connectivity pilot project. This initiative aims to enable cross-border settlements using local currencies, with full operational capabilities anticipated by the end of the year. This pilot is viewed as a critical milestone in the ongoing bilateral financial cooperation between the two nations.
Significance of the New Initiatives
Pan Gongsheng, the governor of the PBOC, highlighted the importance of the LCT framework and QR code connectivity in his speech. He emphasized the potential for further cooperation in areas such as payment system connectivity, increased local currency usage, financial market liberalization, and digital currency advancements.
In the first seven months of this year alone, local currency transactions between Indonesia and China surpassed USD 6.2 billion, representing approximately 45 percent of Indonesia’s total LCT volume with its trading partners, according to BI Governor Perry Warjiyo.
Regional and International Context
The concept of local currency settlement frameworks is not new to the region. Several central banks within the Association of Southeast Asian Nations have initiated similar frameworks to reduce the risks associated with exchange rate fluctuations and currency conversion costs for businesses. These frameworks promote the increased use of local currencies, thereby encouraging more stable and efficient economic transactions.
Indonesia has already established similar agreements with countries such as Japan, Malaysia, South Korea, and Thailand, furthering its commitment to fostering financial integration within the region.
Looking Ahead
The progress made by China and Indonesia through these new financial initiatives underscores the growing importance of collaboration in the global economic landscape. As both countries continue to implement these frameworks and pilot projects, they set a precedent for others in the region and beyond to follow suit, potentially paving the way for more integrated and resilient financial systems.
As these initiatives unfold, stakeholders within both nations and the broader regional community will be keenly observing their impacts on trade and investment dynamics. By prioritizing local currency usage and leveraging digital technologies such as QR codes, China and Indonesia are forging a path toward more seamless and efficient cross-border financial interactions.
The successful implementation of these frameworks and pilot projects could serve as a model for other countries looking to enhance their own financial collaboration, contributing to a more interconnected and robust global economy.