Indonesia is following the BRICS path of de-dollarization and is now looking to ditch the US dollar for global trade and instead have started using its local currency.

The de-dollarization efforts kick-started early this year are spreading across the globe among developing countries. The BRICS alliance is not the only group of nations that is looking to cut ties with the US dollar.

Indonesia’s President Joko Widodo has directed the creation of a National Task Force to look at avenues to promote their local currency, the Indonesian Rupiah.

“Bank Indonesia is confident that the National LCT Task Force will be an effective coordination forum to strengthen policy synergy between government ministries and agencies to increase the use of local currencies in bilateral transactions between Indonesia and major trading partners,” said Governor of Bank Indonesia, Perry Warjiyo said in a press release.

The National Task Force is tasked to widen the use of local currency transactions (LCT) among partner countries. Indonesia’s Central Bank aims to increase payments in Rupiah for bilateral transactions.

Developing countries are going nationalistic with their native economies by putting local currencies ahead of the US dollar. Several countries like India, China, Russia, Argentina, Pakistan, and the UAE have already started using local currencies for trade.

The move could make the US dollar less used for cross-border transactions in Indonesia and dampen the greenback’s demand. The efforts will help to stabilize the Rupiah and Indonesia’s native economy and businesses could begin to thrive.

If Indonesia finds ways to end dependency on the US dollar, the island nation could continue using the Rupiah for trade.

“Indonesia has initiated diversification of the use of currency in the form of LCT. The direction is the same as the BRICS. In fact, Indonesia is more concrete,” Warjiyo said.

Indonesia has already started trading in its local currency with a host of countries including Thailand, Malaysia, China and Japan.

Brazil and China have last month signed an agreement to abandon the US dollar as an intermediary and trade in their own currencies.

China’s attempts to ditch the dollar in international trade have gained momentum after sanctions were imposed by Western nations against Russia following its invasion of Ukraine.

As many as 18 countries have opened 60 special rupee vostro accounts to trade with India in Indian rupee. They are: Russia, Singapore, Sri Lanka, Botswana, Fiji, Germany, Guyana, Israel, Kenya, Malaysia, Mauritius, Myanmar, New Zealand, Oman, Seychelles, Tanzania, Uganda, United Kingdom.

With 88% of international transactions conducted in U.S. dollars, and the dollar accounting for 58% of global foreign exchange reserves, the dollar’s global dominance is indisputable.

Yet de-dollarization – or reducing an economy’s reliance on the U.S. dollar for international trade and finance – has been accelerating following the Russian invasion of Ukraine.

The BRICS countries have been pursuing a wide range of initiatives to decrease their dependence on the dollar. Over the past year, Russia, China and Brazil have turned to greater use of non-dollar currencies in their cross-border transactions.

Iraq, Saudi Arabia and the United Arab Emirates are actively exploring dollar alternatives. And central banks have sought to shift more of their currency reserves away from the dollar and into gold.

All the BRICS nations have been critical of the dollar’s dominance for different reasons. Russian officials have been championing de-dollarization to ease the pain from sanctions.

Because of sanctions, Russian banks have been unable to use SWIFT, the global messaging system that enables bank transactions. And the West froze Russia’s US$330 billion in reserves last year.

Although talk of a BRICS currency has gained momentum, there is limited information on various models under consideration.

The most ambitious path would be something akin to the Euro, the single-currency adopted by 11 member states of the European Union in 1999. But negotiating a single currency would be difficult given the economic power asymmetries and complex political dynamics within BRICS.

And for a new currency to work, BRICS would need to agree to an exchange rate mechanism, have efficient payment systems and a well-regulated, stable and liquid financial market.

To achieve a global currency status, BRICS would need a strong track record of joint currency management to convince others that the new currency is reliable.

A new global economic order will not emerge out of a new BRICS currency or de-dollarization happening overnight.

But it can potentially emerge out of BRICS’ commitment to coordinating their policies and innovating – something this currency initiative represents. – firstpost/watcherguru