Indonesia about to become Asian FX trading tour de force: R5FX CEO Jon Vollemaere explains

Indonesia is a region which has gained tremendous popularity among FX brokerages as a very important emerging market.

With a young and entrepreneurial population, the country is developing its financial markets economy substantially, and is looking at close relationships with neighboring countries in the Asia Pacific region.

Today, Jon Vollemaere, CEO of R5FX, an international marketplace centered on emerging currencies, explains how the important currency swap agreement between China and Indonesia provides an important benefit to intra-Asia trading

As a component of RMB internationalisation, China has signed multiple currency swap agreements. Many of these agreements are with other countries in Asia, encouraging intra-Asia trade and investment. The latest agreement between China and Indonesia provides a boost to intra-Asia trade, but also has a positive impact on offshore centres like London, as RMB becomes used more in trade settlement, financing and borrowing.

The People’s Bank of China and the Indonesian government recently announced the extension, and increase in value, of their bilateral currency swap agreement. The agreement, which enables trade between the two countries to be denominated in RMB and IDR, has increased in value to RMB130 billion (USD19.94 billion), up from RMB100 billion. Originally signed in 2009 and extended in 2013, has agreement has been further extended for an additional years.

The agreement facilitates trade and investment between China and Indonesia, denominated in RMB and IDR. Established to support the stability and values of the two countries’ currencies, the agreement enables settlement in local currency as opposed to USD.

As part of the China-Indonesia swap agreement, the Chinese government has committed to provide loans for Indonesia to finance infrastructure projects, including the construction of 2,000 kilometres of roads and 1,000 kilometres of toll roads. The Indonesian government also plans to build 15 airports and 24 seaports, complete 35,000 MW of electricity projects, build 33 reservoirs and a system to irrigate an area of 1 million hectares.

This agreement provides a good example of the interdependence of countries in Asia, and the trend of intra-Asia trade and investment. China has established currency swap agreements with South Korea (RMB 360 b), Hong Kong (RMB 400 b), Malaysia (RMB 180b) and Singapore (RMB 300b).

Indonesia also has a swap agreement with South Korea (IDR 115 trillion) and Australia (IDR 100 trillion). In addition, there is increasing cooperation in the region, with the establishment of the ASEAN Free Trade Area (AFTA) and the ASEAN Plus Three (APT), which includes AFTA members plus China, Japan and South Korea.

The current intra-Asia market is comprised of commodities and semi-finished goods destined for factories around Asia, as well as consumable items like food, fresh fish, flowers, vaccines and other pharmaceuticals. As costs rise in China it is becoming increasingly common to complete production in lower cost countries within Asia, fuelling intra-Asia trade flows.