27 Aug 2015
REGULATION ON MANDATORY USE OF RUPIAH AND PROHIBITION OF DUAL PRICE DENOMINATION
On 31 March, the Indonesian Central Bank (Bank Indonesia) issued Regulation No. 17/3/PBI/2015 on Mandatory Use of Rupiah Within the Republic of Indonesia (“PBI 17/2015”), followed on 1 June by Circular Letter No. 17/11/DKSP on Mandatory Use of Rupiah Within the Republic of Indonesia (“Central Bank Circular”). The mandatory use of the Rupiah for all cash and non-cash transactions and other requirements under PBI 17/2015 and the Central Bank Circular took effect on July 1, 2015.
PBI 17/2015 states that the Rupiah is a symbol of Indonesia’s sovereignty and the use of the Rupiah currency is needed to support the achievement of stability of the Rupiah exchange rate. It requires the use of the Rupiah currency in all transactions (whether settled in cash or otherwise) effected in the territory of Indonesia.
In prescribing the mandatory use of Rupiah, PBI 17/2015 and the Central Bank Circular apply the territoriality principle that underlies many of the Central Bank’s other regulations.
PBI 17/2015 and the Central Bank Circular lay down the rule that any transaction carried out in Indonesia, both by residents or non-residents, must be effected in Rupiah, and parties are prohibited from refusing to accept the Rupiah as payment if Rupiah must be used for such transaction. The transaction itself and payments made pursuant to it are regarded as one integrated concept, and the payment to or by an Indonesian party in implementation of a transaction carried out in Indonesia must use the Rupiah. On the other hand, the mandatory use of Rupiah is not applicable to a transfer in foreign currency by a resident party to non-resident party that is not in payment or other settlement of a transaction effected in Indonesia.
The following types of transactions are specifically exempted under PBI 17/2015 and the Central Bank Circular:
Apart from the above exemptions, the Central Bank has discretion to issue special policies upon application with respect to the implementation of the use of Rupiah: the Central Bank Circular specifies that if there are difficulties for businesses with specific characteristics, it may at its discretion issue policies based on special considerations. These include:
In addition to the above factors, the Central Bank will also consider an applicant’s compliance with the other currency related regulations, such as those on repatriation of export revenue and implementation of prudence principles in managing offshore borrowings.
PBI 17/2015 and the Central Bank Circular not only contain provisions on the mandatory use of Rupiah, but also prohibit the use of dual price denomination using Rupiah and another currency. This prohibition for instance applies to:
The prohibition to use a dual price denomination also applies to the publication of prices for products and/or services through electronic media.
The Central Bank supervises compliance with the mandatory use of Rupiah and the obligation to quote prices of goods and services in Rupiah. In exercising supervision, it may request reports, statements and data on compliance, conduct audits and cooperate with other agencies and may use information obtained from such other agencies. All banks are required to inform clients wishing to make payments in foreign currency of the mandatory Rupiah use requirements and must request information on the purpose of such payments.
The Central Bank also has the authority to impose penalties for non-compliance in both cash and non-cash transactions:
Other than the above administrative sanctions, the Central Bank may issue a recommendation letter to revoke the business license or to require the cessation of operations.
The Central Bank Circular clarifies that written agreements that have been entered into before July 1, 2015 are grandfathered and remain valid until their expiry. They include implementing agreements that derive from master agreements and documents concerning the transactions to be carried out by the parties based on such agreements, e.g., purchases orders and delivery orders.
A derivative contract or implementation of a master agreement signed after 1 July 2015 that is treated as a stand-alone agreement will be subject to the mandatory Rupiah use requirements.
Any extension of the term of or other amendment of a written agreement (e.g., changes of the parties, the price of goods or services, or the object) entered into after 1 July 2015 will also not be grandfathered. (by: Theodoor Bakker, Gustaaf Reerink, and Emir Nurmansyah)