The Indonesian government is seeking to benefit from the inclusion of China’s renminbi in the International Monetary Fund’s special drawing right in October, hoping that the free use of the currency will help improve trade relations between the two countries.

The special drawing right (SDR) is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves.

Its value, according to information on the IMF’s website, is currently based on a basket of four key currencies, namely the US dollar, the British pound, the euro and the Japanese yen.

The renminbi is slowly becoming an important part of trade, taking into account that China is one of Indonesia’s key trading partners

The inclusion of the renminbi was scheduled for October 1 and thereafter, it is freely usable by the international community as it is convertible under the flexible capital flows in and out of China.

An expert staff member of the state-owned enterprises ministry Sahala Lumban Gaol said recently that the renminbi was slowly becoming an important part of trade, considering that China is one of Indonesia’s major trading partners.

“Our economic growth and activities will lead our trade to use more renminbi in the future,” he said.

China, which is the world’s second-biggest economy, sealed $27.81bn worth of trade with Indonesia from January to August 2016.

Data from the Central Statistics Agency placed China as Indonesia’ s third-largest export destination and its largest import source.

Exports mostly comprised commodities, such as mineral fuels, wood and rubber, while imports constituted mechanical appliances and electrical machinery.

Indonesia already has a bilateral currency swap arrangement worth 130bn renminbi ($19.49bn) with the People’s Bank of China (PBOC) — which is China’s central bank — that will facilitate Indonesia in obtaining the currency whenever necessary, including for trade.

Zhang Min, the country manager at the Bank of China’s Jakarta branch, said the use of the renminbi would promote trading and economic development in Indonesia and China and reduce unnecessary foreign exchange losses.

“The usage of the renminbi will reduce the losses caused by the US dollar exchange fluctuations in bilateral trade activities, which will also lead to the healthy development of bilateral trade and investment,” he said.

More than 30 overseas central banks and monetary authorities have brought the renminbi into their foreign reserve portfolios to the amount of 864.70bn yuan by the end of 2015, Zhang said, quoting data from the PBOC.

Separately, Institute for Development of Economics and Finance Executive Director Enny Sri Hartati warned that the inclusion of the renminbi in the SDR basket could strengthen the currency, thus making importation more “attractive” than exportation.

“The prices of commodities have been plunging, and we still see limited demand for them. If the renminbi strengthens, we could see a stagnation of exports to China,” she told The Jakarta Post.

Indonesia is known for its abundant natural resources, including coal and tin.

However, as the global economy slumped and has remained weak for years, the demand for commodities fell along with the prices.

—The Jakarta Post/ANN

Published in Dawn, Business & Finance weekly, October 3rd, 2016