Indonesia and China formalise currency pact amid deepening strategic ties - Trade Treasury Payments

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Indonesia and China formalise currency pact amid deepening strategic ties

Indonesia and China have signed a new suite of bilateral cooperation agreements, headlined by a move to expand local currency use in trade and investment flows. The arrangement, formalised in Jakarta during Chinese Premier Li Qiang’s state visit, continues a shift away from the US dollar in regional financial transactions and deepens economic interdependence between the two countries.

At the centre of the agreements is a memorandum of understanding (MoU) between Bank Indonesia and the People’s Bank of China. The deal outlines a framework to enable cross-border transactions in Indonesian rupiah and Chinese yuan, building on an earlier swap line agreement valued at up to ¥400 billion ($55 billion).

Whereas the previous arrangement, signed in 2020, was limited to current account and direct investment transactions, the new MoU extends into capital and financial account settlements. According to the Chinese central bank, the agreement aims to facilitate trade and investment by improving payment efficiency and strengthening ties between the two countries’ financial systems.

China remains Indonesia’s largest trading partner, with bilateral trade volumes reaching $135.2 billion in 2024. For Jakarta, increasing the role of the rupiah in external trade will help reinforce monetary sovereignty and mitigate currency volatility. Indonesia maintains similar local currency arrangements with several regional partners, including South Korea, Malaysia, and Australia.

The local currency pact was one of 12 MoUs signed following a bilateral meeting between Indonesian President Prabowo Subianto and Chinese Premier Li. President Prabowo said, “We held productive talks today and reached cooperation agreements on many fronts that we believe will greatly benefit both nations.”

Other agreements include:

• Economic coordination: An MoU between Indonesia’s National Economic Council and China’s National Development and Reform Commission to align policy planning and investment strategies.
• Industrial and supply chain cooperation: A bilateral initiative for manufacturing and logistics linkages, led by Indonesia’s Coordinating Ministry for Economic Affairs and China’s Ministry of Commerce.
• ‘Two Countries, Twin Parks’ initiative: A trilateral agreement involving the Fujian Provincial Government to develop parallel industrial parks across both countries.
• Tourism development: A framework for promoting cross-border tourism and cultural exchange between the countries.
• Public health and traditional medicine: Agreements covering disease prevention, especially focussed on tuberculosis control and knowledge sharing in traditional Chinese medicine.
• Media and investment channels: Partnerships between national media agencies and sovereign investment bodies, including a cooperation deal between Danantara Indonesia and the China Investment Corporation.

While the MoUs outline strategic intent, operationalising local currency transactions at scale will depend on private sector participation, harmonised regulatory frameworks, and supporting infrastructure. Analysts suggest that the pace of adoption will vary across sectors, with state-linked enterprises and large-scale trade flows likely to lead the transition.

Both sides appear aligned in viewing these agreements as building blocks in a broader programme of economic and strategic cooperation. For China, the deal strengthens yuan internationalisation efforts while reinforcing its Belt and Road presence in Southeast Asia.