Global Trade Alert

On 1 June 2015, the Indonesian Central Bank announced three revisions aimed at easing the provisions for the domestic foreign exchange market. The three regulations which were amended included

• 16/16/PBI/2014 (on foreign exchange transactions with domestic parties),
• 16/17/PBI/2014 (on foreign exchange transactions with foreign parties) and
• 5/13/PBI/2003 (on the Net Open Position of banks).

Foreign exchange transactions with domestic parties
With regards to the first, the definition of derivative transactions was expanded to include also cross currency swaps (hereinafter: CCS). According to the bank, a "CCS is an agreement between two parties to exchange funds with interest in different currencies". They are used to mitigate currency and interest rate risks. At the time of the revisions, the Indonesian economy suffered from a weakening domestic currency and potential risks involving an interest rate increase by the Federal Reserve.
Furthermore, in the amendments of this regulation, foreign exchange transactions against the Indonesian rupiah will from now on require an inclusion of income and expense estimation of the trade and investment activity in the underlying transactions.
Foreign exchange transactions with foreign parties
Regulation 16/17/PBI/2014was changed as to erase the minimum 1 week period of a derivative transaction for foreigner parties. Similarly to 16/16/PBI/2014, the definition of allowed derivative transactions was also expanded.
Net Open Positions
Meanwhile, in regulation 5/13 / PBI / 2003, the bank removed the obligation for banks to maintain the Net Open Position (hereinafter: NOP) every 30 minutes and will be only required at the end of the trading day. This means banks will be allowed keep a gap of their assets and liabilities in foreign currencies for up to 20% of the bank's capital throughout the day, thus starkly increasing foreign exchange liquidity.
 
The central bank argued in its statement these amendments would improve the liquidity of local financial institutions and allow "economic actors' hedging in order to mitigate market risk and foreign exchange liquidity" (own translation).
The revisions came into force on the day of their announcement.