KADIN INDONESIA
Indonesian Chamber of Commerce and Industry
In an effort to further promote a modern and advanced foreign exchange market following the issuance of Regulation of Bank Indonesia (“BI”) No. 6 of 2024 on Money Markets and Foreign Exchange Markets,[1] the BI Board of Governors has decided to issue Regulation No. 11 of 2024 on Foreign Exchange Market Transactions (“Regulation 11/2024”).[2] Upon entering into force on 30 September 2024,[3] Regulation 11/2024 simultaneously repealed and replaced the following regulatory frameworks:[4]
However, it should be noted that any foreign exchange markets or DNDF transactions that were initiated prior to the enforcement of Regulation 11/2024 will continue to be implemented in accordance with the now-revoked frameworks of Regulation 10/2022 and Regulation 11/2022 respectively.[6]
At its core, Regulation 11/2024 attempts to consolidate various provisions that govern both the foreign exchange market and DNDF transactions under a unified regulatory framework. This new framework continues to feature core provisions that address these types of transactions, as originally featured under both Regulation 10/2022 and Regulation 11/2022. However, the new framework of Regulation 11/2024 has introduced several revisions that specifically relate to foreign exchange market participants (“Participants”), including the adoption of smart contracts, the standardization of foreign exchange market transactions, permission for cover hedging transactions and new provisions on settlements.
Against the above backdrop, this edition of Indonesian Legal Brief (“ILB”) summarizes the new provisions that have been introduced under Regulation 11/2024. However, for reasons of concision, our discussion has been limited to the following topics:
New Smart Contracts
Under the now-revoked Regulation 10/2022 and Regulation 11/2022, Participants involved in derivative transactions were required to use financial contracts and confirmations.[7] However, the new framework of Regulation 11/2024 also now allows for the use of smart contracts. The use of any such smart contracts must be accompanied by the storage of said smart contract agreements that at the very least outline the applicable terms and conditions for the automated execution of rights and obligations that are stipulated within said contracts.[8]
Regulation 11/2024 imposes the following obligations upon any commercial banks (“Banks”) that choose to utilize smart contracts:[9]
Prior to the utilization of any smart contracts, Banks are required to consult with Bank Indonesia. Said consultations can be initiated through the submission of applications for smart contract consultations using the format outlined under Appendix I to Regulation 11/2024. Said applications should be submitted via email to the Contact Center Bank Indonesia Bicara at the following email address: bicara@bi.go.id. Along with an application letter, a Bank must also submit a proposal and supporting documents that specifically address foreign exchange transactions.[10]
Adjusted Foreign Exchange Market Transactions
Regulation 11/2024 has also clarified the scope of foreign exchange market transactions, which now encompass currency exchanges that take the following forms:[11]
Moreover, Regulation 11/2024 has introduced a new transaction mechanism that can be used for hedging transactions that are carried out between Banks and foreign banks for foreign exchange transactions that are already conducted by a Bank’s customers (“Cover Hedging”).[12] In this regard, the aforementioned Cover Hedging transactions are also applicable to re-hedging transactions that are performed by other Banks, provided that said Banks include underlying transactions that are owned by their respective customers.[13]
In terms of transactions that are completed through third parties, Regulation 11/2024 has now expanded the scope of the types of economic activities for which this transaction method may be utilized. The adjustments to these activities are outlined in the following table:
| Forms of Activities | Regulation 11/2024[14] | Regulation 10/2022[15] |
| Fund transfer services | Ö | Ö |
| E-commerce | Ö | Ö |
| Portfolio investment transactions | Ö | Ö |
| Foreign direct investment | Ö | |
| Loans | Ö | |
| Capital | Ö | |
| Other activities determined by BI | Ö | Ö |
Additionally, Regulation 11/2024 emphasizes a new standardization for foreign exchange market transactions that are conducted through transaction facilities, which are to be cleared through a Central Counterparty (“CCP”)[16] and reported via the trade repository.[17] The standardization of these transactions will be published via the official Bank Indonesia website and/or other media, as determined by BI.[18]
Underlying Transactions: Redefined Thresholds
Previously, both Regulation 10/2022 and Regulation 11/2022 stated that the applicable thresholds for cash transactions that involved purchases of foreign currencies against the rupiah only applied to forward and DNDF transactions.[19] However, Regulation 11/2024 has now redefined these thresholds to encompass the following types and amounts:[20]
| Transaction Type | Threshold Amount (in US$ or Other Currency Equivalent) |
|
| Cash transactions | 100,000 per month | |
| Forward and DNDF | Buy | 100,000 per month |
| Sell | 5 million per transaction | |
| Swap | 5 million per transaction | |
| Other derivative transactions | Buy | 100,000 per month |
| Sell | 1 million per transaction | |
Adjusted Transaction Settlements
In terms of the settlement of foreign exchange derivative transactions against the rupiah in various forms (i.e. rollover, early termination or unwind), Regulation 11/2024 has clarified that these forms of settlements must be agreed upon by both parties and/or stipulated in agreements and supported by documentation that reflects the relevant transaction adjustments.[21]
Furthermore, the new framework of Regulation 11/2024 has also introduced a number of provisions that specifically address the settlement of transactions under certain conditions (i.e. bankruptcy and the close-out netting mechanism). These provisions break down as follows:
| Aspect | Transaction Settlement During Bankruptcy[22] | Close-Out Netting[23] |
| Applicable circumstances | Transactions that meet the requirements and/or that occur before a bankruptcy declaration is issued. | In the event of default caused by an event of default or an event of termination in relation to derivative transactions. |
| Settlement requirements | Must be settled as if bankruptcy had not occurred, and cannot be canceled by any directly involved party. | Settlements can be conducted through close-out netting as long as this has been stipulated in the relevant agreement. |
| Settlement timing | Transactions cannot be annulled. | Settlements cannot be reversed by the court, even if a debtor is bankrupt. |
Key Takeaways
The issuance of Regulation 11/2024 marks a pivotal shift in the foreign exchange market and places a strong emphasis on innovation. The introduction of smart contracts provides a secure and automated approach to transactions, reducing counterparty risks and ensuring real-time efficiency. Furthermore, the new framework’s recognition of digital forms of currency exchanges underscores Bank Indonesia’s commitment to integrating emerging financial technologies into the market infrastructure, thereby fostering a more adaptable and future-ready marketplace.
National Economy
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