Bank Indonesia will apply a fine to onshore transactions conducted in foreign currencies from July as the monetary authority attempts to stem a decline in the rupiah, which has tumbled to a 17-year low.
The central bank will require all trades between domestic parties within Indonesia to be conducted in rupiah and forbids companies from refusing payments in the local currency, it said in a circular letter dated June 1 and effective from the same date. The July ruling will apply a fine of 1 percent of any transaction that breaks the conditions, or as much as 1 billion rupiah ($75,200), according to the statement.
Some companies pay employees in dollars while some rents are charged in the U.S. currency. Bank Indonesia estimates that such transactions between domestic parties amount to $12 billion a day, Director Nanang Hendarsah said in an interview from Jakarta on Wednesday. The rule is the latest in changes the central bank has made to stabilize the rupiah, Asia’s worst-performer this year, following earlier requirements for companies to hedge foreign-currency debt and relaxations on selected derivatives.
“I don’t think the scale of these transactions is large enough to have an impact on the macro-level or the interbank exchange rate,” said Mirza Baig, head of foreign-exchange and interest-rate strategy at BNP Paribas SA in Singapore. “We feel that the big focus that policy makers are making on these things is a real distraction from real issues.”
The rupiah declined 0.1 percent Friday to 13,292 a dollar as of midday in Jakarta, taking 2015’s losses to 6.8 percent, prices from local banks show. It fell to 13,300 earlier, the weakest level since August 1998.
The requirements for rupiah use exclude transactions for the state budget, funding grants from overseas parties and international trade, according to the statement. It also exempts banking activities including foreign-currency loans and bonds, as well as interbank transactions. The central bank may exempt some trades related to funding for infrastructure activities.