Indonesia

Indonesia’s central bank, Bank Indonesia (BI), recently issued BI Regulation No. 17/3/PBI/2015 regarding the mandatory use of Rupiah within the Republic of Indonesia, which restricts the use of foreign currency in domestic transactions conducted within Indonesian territory.

The main highlight of BI Reg. 17 is that it provides more detailed requirements on the use of Rupiah, particularly for transactions within Indonesia. According to a BI official, the requirements under BI Reg 17 are not meant to contradict those in the currency law (Law No. 7 of 2011) or the fund transfer law (Law No. 3 of 2011), but rather to provide more specific requirements on the mandatory use of Rupiah. The following is a brief summary on the mandatory use of Rupiah under BI Reg. 17.

Transactions that require the use of Rupiah: Article 2(2) of BI Reg. 17 requires the use of Rupiah in cash and non-cash transactions in Indonesia. This is virtually the same requirement as under Article 21(1) of the currency law. The main difference is the mandatory use of Rupiah for non-cash transactions, as the government previously confirmed that the currency law was only intended for cash transactions. Specifically, BI Reg. 17 stipulates the mandatory use of Rupiah for transactions in Indonesia that are for the purpose of payment; transactions in Indonesia that are for the settlement of other obligations that must be fulfilled with money; and other financial transactions in Indonesia.

Transactions that are exempted from the mandatory use of Rupiah: BI Reg. 17 stipulates that those transactions that are exempted from the mandatory use of Rupiah are as follows: certain transactions related to the implementation of the state budget as further detailed in Article 6 of BI Reg. 17; acceptance or provision of grants from or to overseas, if either the receiver or provider of the grant is domiciled overseas, as stipulated in Article 7 of BI Reg. 17; international trade transactions, as detailed in Article 8 of BI Reg. 17; foreign exchange savings at banks; and international financing transactions with either the provider or the receiver of the financing domiciled overseas, as stipulated in Article 9 of BI Reg. 17.

Article 5 of BI Reg. 17 provides additional transactions that are exempted, as follows: business activities in foreign exchange conducted by banks pursuant to the law that regulates banking and sharia banking; foreign exchange transactions involving commercial paper issued by the government in primary markets or secondary markets pursuant to the law regulating state debentures and state sharia commercial paper; and other foreign exchange transactions conducted based on, among others, the Bank Indonesia law, the capital investment law and the Indonesian export financing institutions law.

Exemptions on the use of Rupiah for non-cash transactions: Article 16 of BI Reg. 17 provides that if businesses have trouble implementing the mandatory use of Rupiah for non-cash transactions, BI may issue them exemptions. In issuing exemptions, BI will consider the readiness of the business actor, the continuity of the business activity, investment activity and/or national economic development.

Prohibition on refusing Rupiah: Article 10(1) of BI Reg. 17 prohibits any parties from refusing to accept Rupiah as payment or settlement of obligations that must be fulfilled by using Rupiah and/or for other financial transactions within Indonesia. Article 10(2) of BI Reg. 17 provides two conditions that allow a party to refuse Rupiah: if there is any question as to the originality of the Rupiah received for cash transactions; and payment or the settlement of obligations in foreign exchange has been agreed in writing.

Mandatory declaration of the price of goods and/or services in Rupiah: BI Reg. 17 requires that all business actors in Indonesia declare the price of their goods and services only in Rupiah. This is a new requirement that was not provided for in the currency law.

Sanctions: BI Reg. 17 provides criminal sanctions for any violations of the mandatory use of Rupiah for cash transactions or the prohibition on refusing Rupiah. BI Reg. 17 provides administrative sanctions for any violation of the mandatory use of Rupiah for non-cash transactions, including a fine of one percent of the transaction value, with a maximum fine of one billion Rupiah. Violations of the obligation to declare the price of goods and services in Rupiah and the obligation to provide reports and/or data on the use of Rupiah will result in administrative sanctions in the form of written warnings. Article 19 of BI Reg. 17 also provides that BI can recommend that the competent authorities take action in response to violations.

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