LCT Transactions Surge 309% as Bank Indonesia Drives De-dollarization

MAKASSAR — Amid the ongoing depreciation of the rupiah against the US dollar, Bank Indonesia (BI) is intensifying its efforts to optimize Local Currency Transaction (LCT) frameworks with major trading partners. By shifting away from the US dollar for bilateral trade, the central bank aims to stabilize the currency, reduce transaction costs, and bolster regional financial market development.

Understanding the LCT Framework

LCT allows businesses in Indonesia and partner nations to settle bilateral transactions directly in their own local currencies. This process is facilitated through Appointed Cross Currency Dealers (ACCD) banks, effectively removing the need for a third currency—the US dollar—as an intermediary. By bypassing the “middle-man” effect, businesses can achieve greater transaction efficiency and avoid unnecessary currency conversion costs.

Surging Adoption and Strategic Importance

The urgency of adopting LCT has grown significantly, particularly following US import tariff announcements in 2025. Data from Bank Indonesia reveals a massive surge in adoption; between January and April 2026, the volume of LCT transactions reached approximately US$22.61 billion, representing a 309% year-on-year increase compared to US$7.33 billion during the same period in 2025.

Ruth A. Cussoy, Director of the Department of Financial Market Deepening at BI, clarified that the strategy is not intended to avoid the US dollar entirely, but to streamline trade with countries where Indonesia maintains direct and heavy domestic transaction volumes. She emphasized that the core objective of LCT is to eliminate inefficiencies inherent in using a global reserve currency for direct bilateral trade.

Currently, the primary partners for Indonesia’s LCT mechanism are China (89%), Japan (6%), and Malaysia (3%). The upward trajectory is clear: total LCT volume grew from US$2.53 billion in 2021 to US$25.72 billion by the end of 2025. The number of participating businesses has also expanded rapidly, rising from 497 in 2021 to an average of 9,720 per month in 2025.

Building Global Partnerships

Since 2018, Bank Indonesia has established LCT agreements with the central banks of Malaysia, Thailand, Japan, China, South Korea, and the United Arab Emirates (UAE). Looking ahead, BI plans to expand this network further. Ruth noted that implementation is expected shortly for the Singapore Dollar (SGD), Indian Rupee, and Saudi Riyal, which will provide further relief to the domestic currency.

Economic Perspective on Rupiah Volatility

Josua Pardede, Chief Economist at PT Bank Permata Tbk, supports the expansion of LCT, noting its vital role in mitigating the impact of the rupiah’s depreciation, which has exceeded 5% year-to-date in 2026. He highlighted that while the rupiah has faced pressure against many regional currencies—such as the Malaysian Ringgit and Singapore Dollar—the LCT framework provides a necessary buffer.

Pardede pointed out that beyond global conditions, domestic seasonal factors—such as increased demand for foreign currency during the Hajj pilgrimage, corporate dividend repatriations, and external debt payments—contribute to the volatility. He specifically noted that if the LCT mechanism were fully utilized between Indonesia and Saudi Arabia, the seasonal surge in demand for US dollars during the Hajj season could be significantly mitigated.

Ultimately, the consensus remains that encouraging LCT adoption is not just a tactical choice but a strategic necessity. By pushing for broader central bank collaboration, Indonesia aims to create a more resilient financial environment that reduces reliance on the US dollar for day-to-day trade operations.