Indonesia Reduces Dollar Dependence, Here is an Explanation from UMM Lecturer

Author : Humas | Friday, February 16, 2024 07:25 WIB
D-III Finance and Banking Lecturer (Photo: Laili Humas)

Bank Indonesia (BI) recently announced a strategic step by reducing dependency on the US dollar as the main currency in international trade through a de-dollarization scheme. Some countries that have agreed to this include Malaysia, Thailand, Japan, China, and now South Korea. Although the dollar is recognized as a strong currency globally, dependence on it is no longer considered an optimal choice.

According to Syamsul Hadi, SE., M.Si. CRA, lecturer of the Finance and Banking D-III program at Muhammadiyah University of Malang (UMM), this step is necessary to strengthen the sovereignty of local currencies in global economic competition. Moreover, the influence of the dollar on the rupiah is significant, considering that the United States is a major trading partner for Indonesia and other countries.

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"The reason is that the dollar has been widely distributed in various countries in large amounts. This is because of the American oil purchase trade to the Middle East, also known as the petrodollar. However, to anticipate the increasingly competitive economic and political influence of China on America, trade with countries other than America should preferably use each country's domestic currency," Syamsul explained.

He added that this step reflects the overall intensity of trade between the two countries, namely exchange rates. Another advantage is the predictability of exchange rates, which can be jointly controlled by the two countries. It is different when using the US dollar, as international traders will still consider the strengthening or weakening of the dollar exchange rate. 

"The two steps of calculation or prediction and the exchange rate of the US dollar are beyond our control. Thus, the trend of using each country's domestic currency is more 'pleasant' and well-controlled. This becomes the safest, easiest, most efficient, and win-win solution because it is determined based on each country's economic conditions," he added. 

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Syamsul also implied that if Indonesia wants to become a strong country with an advanced economy at the global level, it must have sufficient and strong reserves of US dollars or yuan. Additionally, it must have an optimum exchange rate formulation for trade.

In the context of national strategy, he also emphasized the need to focus on conducting in-depth research to determine the strategy. So that it can obtain a currency exchange rate that provides optimum value, especially in the field of trade, as one of the gateways to winning global competition.

"Don't be a market follower. We must have short-term and long-term targets. For example, China, started by collecting US dollars for almost 12 years. Then, it could implement a fixed exchange rate policy by pegging the US dollar using a certain formulation. Observing fluctuations in value with standard deviation alone is not enough, it requires formulation and which country to target first. Of course, with major trading partners namely America, China, and Japan," he explained.    

Unfortunately, Indonesia has been neglectful of this issue, even though it has been going on for decades. As a result, many studies state that the export value in the country is low because the exchange rate continues to depreciate from what it should be. 

"However, Indonesia has also implemented measures to strive for the stability of the US dollar supply. For example, requiring transactions at Indonesian ports to use the rupiah, the love for the rupiah movement, restrictions on taking dollars abroad, legalizing and increasing the number of money changers, reference interest rates, and so on," he concluded. (lai/wil/fajr)



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