Indonesia has become the latest country to join the global de-dollarization trend in trade and investments. Indonesia’s central bank reported that the country had established a National Task Force to promote local currency transactions (LCT) with partner nations.
In a press release, Bank Indonesia Governor Perry Warjiyo expressed confidence in the task force. It would serve as “an effective coordination forum to strengthen policy synergy between government ministries and agencies.”
This coordination is expected to boost the use of local currencies in bilateral transactions between Indonesia and its key trading partners. Furthermore, this move will stabilize the rupiah and bolster the resilience of domestic financial markets.
Besides supporting export-import activities, the LCT will accommodate cross-border investments and payment transactions. It is also expected to facilitate securities trading in the future.
De-dollarization gaining momentum
Indonesia’s de-dollarization move is part of a broader trend observed in several nations, including China, Russia and India. These nations are actively working to decrease their dependence on the U.S. dollar in global transactions.
China and India, for instance, have already taken steps to establish currency-based trade arrangements. In August 2023, India purchased 1 million barrels of oil from the UAE using the rupee. India and the UAE have also begun settling their bilateral trade in local currencies, according to the Indian government.
As for China, the country has made a bilateral agreement with Argentina, which allowed the latter to tap over half of an $18 billion currency swap line. In August, Argentina announced it would start buying the bulk of its Chinese imports in the yuan instead of the U.S. dollar to preserve its shrinking dollar reserves.
Moreover, the BRICS bloc, of which China is a member, is also reportedly exploring the feasibility of creating a shared currency. Even so, its August summit ended without formal announcements about the shared currency.
At the BRICS summit last month, Russian President Vladimir Putin said de-dollarization was an “irreversible process.” He asserted that the five BRICS members were emerging as the new global economic leaders.
Putin further explained that the BRICS’ combined share of the global GDP had reached 26 percent. He also pointed out that when measured using purchasing power parity, BRICS had already exceeded the Group of Seven, accounting for 31 percent of the global economy.
Ongoing debate
The global movement against the dollar’s dominance has sparked an ongoing debate in many countries. For example, Zimbabwe, which seeks membership in the National Development Bank, has faced internal criticisms regarding its de-dollarization plan even before its application received approval.
Former finance minister Tendai Biti cautioned that abandoning the dollar could lead to an economic “disaster.” In a recent post, Biti characterized any shift from the greenback as a “zany attempt to follow the global de-dollarization agenda advocated by #BRICS and other proponents of the new world order.”
The former minister asserted that Zimbabwe lacked the economic power to abandon the dollar. The country has been grappling with a prolonged economic crisis, with July’s inflation reaching 101.3 percent year-on-year.
Although the official currency is the Zimbabwean dollar, John Mangudya, the country’s central bank governor, revealed in July that the U.S. dollar was still used in 75 percent of all transactions in Zimbabwe.
In 2019, Zimbabwe’s government banned the use of foreign currencies. President Emmerson Mnangagwa cited the U.S. dollar’s influence on inflation as a significant factor.
Concerns have intensified amid fears that Washington is leveraging the dollar-based global financial system in response to the Ukraine conflict. The BRICS bank has initiated its de-dollarization efforts by increasing loans in member countries’ local currencies.