BI Governor Claims Central Counterparty Can Lower Government Debt Costs

JAKARTA - Governor of Bank Indonesia (BI) Perry Warjiyo revealed that he will launch a new institution that manages the currency market and foreign exchange market (CCP), one of which uses repurchase agreement transactions through an intermediate institution, not bilaterally between banks.

Perry explained that CCP will act as an institution that collects all collateral in the form of Government Securities (SBN) and Bank Indonesia Securities (SRBI).

So that banks no longer have to sell SBN or SRBI which is owned at a cheaper price or do repo with a high interest rate.

"The reason is that we will reduce the government's debt costs because the SBN which has been owned by the bank by the most one counter is in the pool so that SBN is used as collateral for the repo and the SBN yield interest rate will be lower because banks that need liquidity do not need to sell their SBNs, they can repo to meet their needs," Perry said in a working meeting with Commission XI, Thursday, September 12.

Perry conveyed that the formation of CCP is in line with the mandate of Law Number 4 of 2024 concerning the Development and Strengthening of the Financial Sector (P2SK). In that regulation, BI can regulate, develop, and oversee the foreign exchange market and market, including financial market infrastructure.

"This CCP implementation is a financial infrastructure that has a strong legal basis in the law, where, this CCP is also a follow-up to fulfilling Indonesia's commitment as a member of the G20," he said.

Perry said that CCP will be a driving force for the development of the currency market and foreign exchange market because the volume of transactions in the repo market will be higher, the credit risk is low, and make price or interest rate higher.

In addition, CCP will also be an institution that plays a role in the Non-Delivereable Forward (DNDF) Domestic Market. After previously the DNDF instrument in Over-The-Counter (OTC) trading, it will be centralized through CCP.

Perry menyampaikan, OTC memiliki risiko yang tinggi dengan volatility yang besar dan volume perdagangan yang dilakukan juga terbatas.

"We will encourage CCP starting from DNDF so that it can deepen the foreign exchange market," he explained.

According to Perry, the presence of CCP will make market participants use the same infrastructure in transactions so that the credit risk is lower because transactions are centralized.

"When they want to repo, each of the perpetrators of the SRBI or SBN earmark as an underlying, the repo becomes the collateral for SBN or SRBI to be used as collateral as a basis. They can make transactions with CCP collateral, in the pool [collected] with the same infrastructure so that the transaction volume is larger," he explained.

Perry said that CCP is planned to be launched on September 30 with financial authorities, namely OJK, LPS, Ministry of Finance, and the Ministry of SOEs.

In addition, market participants consisting of 8 banks namely Mandiri, BRI, BNI, BCA, CIMB Niaga, Danamon, Maybank, and Permata, who participated in shareholders at the new institution.