Bank Indonesia and the Hong Kong Monetary Authority (HKMA) jointly announced today (Friday) the signing of a Memorandum of Understanding for the establishment of a large-value payment system link between Indonesia and Hong Kong.
The two central banks will establish a link between the Indonesian Rupiah real time gross settlement system in Indonesia and the US dollar real time gross settlement system in Hong Kong. This will be a cross-border payment-versus-payment (PvP) link between two real time gross settlement (RTGS) systems for two different currencies in the Asian region, with completion scheduled for 2009.
The link allows the reduction of foreign exchange (FX) settlement risk during Indonesia and Hong Kong business hours through the implementation of a PvP mechanism. Under this mechanism, the delivery of a currency in a FX trade is conditional upon the delivery of the other currency in the trade, thus reducing the risk of non-delivery of any currency through real time settlement in the same time zone.
The establishment of the payment system link between Bank Indonesia and the HKMA will increase the efficiency and safety of payment systems in Indonesia and in the region, in particular the management of FX settlement risk exposure for the FX transactions involving the US dollar and Indonesian Rupiah (USD/IDR). In addition to the reduction of the settlement risk, banks in Indonesia are expected to gain operational efficiency in executing the settlement of the FX transactions and to provide an assurance to their counterparties of their ability to settle FX transactions during Asian hours.
Mr Esmond Lee, Executive Director (Financial Infrastructure) of the HKMA, said, "The link between the US dollar RTGS system in Hong Kong and the Indonesian Rupiah RTGS system in Indonesia builds on the success of the existing model of cross-border PvP link between Hong Kong and other Asian economies. It promotes safer and more efficient payment flows, and eliminates settlement risk arising from the delivery of different currencies in different time zones."
Mrs SWD Murniastuti, Director of Accounting and Payment System, Bank Indonesia, said, "The implementation of the USD/IDR PvP link between the Indonesian Rupiah RTGS system and the US dollar RTGS system in Hong Kong is the means to mitigate settlement risk in interbank FX trades in Indonesia especially for the USD/IDR trades as the predominant exposure in the country. It is the main concern of us as the authority. Other advantages benefiting the Indonesian banks are allowing immediate utilization of Indonesian Rupiah and US dollar as both currencies are settled real-time, simultaneously and in Asian time zone and potentially making wider choice of counterparties in interbank USD/IDR market as the market players are not constrained by counterparty trading limit representing FX settlement risk exposure. In turn, this could promote safe, sound and efficient FX market in the country."
For further enquiries, please contact:
Pipih D. Purusitawati, Senior Analyst, at (62) 21- 3818772 or
Edhie Haryanto, Senior Analyst, at (62) 21- 3818770
Hong Kong Monetary Authority
Peggy Lo, Manager (Press), at (852) 2878 1687 or
Hing-fung Wong, Manager (Press), at (852) 2878 1802
Hong Kong Monetary Authority
24 October 2008