Brief Overview on the New Currency Law

General Overview

The enactment of Law No. 7 of 2011 on Currency (“Currency Law“) on June 28, 2011, has made several effects on transactions in Indonesia. Pursuant to Article 21 paragraph (1) of the Currency, the Rupiah shall be used in the Territory of the Republic of Indonesia in:

a.   every transaction that has the purpose of payment;

b.   settlement of other obligations to be fulfilled with money, and or

c.   other financial transactions conducted within the territory of the Republic of  Indonesia.

Exemptions

Notwithstanding the obligation to use Rupiah for payment of transactions which occur in the territory of the Republic of Indonesia, it must also be understood that there are exemptions to such obligation provided by Article 21 paragraph (2) of the Currency Law, namely in terms of:

a.  the particular transaction is a transaction in the implementation of the State Budget (APBN);

b.   receipts or grants (hibah) from or to foreign countries;

c.   international trade transactions;

d.   Bank deposits in foreign currencies; or

e.   international financing transactions.

Observing the requirements of international trade transactions which exclude the use of the rupiah in the territory of the Republic of Indonesia, a question may arise as to what is meant by “international trade”? It is very unfortunate that there is no clear definition of the term in the Elucidation of Article 21 paragraph (2) Point c of the Currency Law.

Regarding the meaning of “international trade,” some defines it as “the exchange of goods and services the between nations”, so it may be understood that trade between an Indonesian entity and foreign entity is an international trade transaction if the party is of different nationality. Currency Law was not intended to assert that “international trade” is the only international trade in goods (international trade on goods).

Up until now, there are still no clear definition of what international trade is and presumably, it is safe to concur that as long as the Government of Indonesia has not yet issue the implementing regulation on this, parties need to be careful to categorize what transaction could be regarded as “international trade”.

The Government is trying to protect Rupiah by the enactment of the New Currency Law

Pursuant to the provisions stipulated in Article 23 paragraph (2) of the Currency Law, the parties are allowed to make payment of the transaction with other currency beside Rupiah, under the condition that the parties have agreed in writing that the transaction will be paid in other currency.

Sanctions

Generally, the Currency Law states that if any of the obligation in the Currency Law is violated, then the violator is liable to a maximum confinement of 1 (one) year and a fine of Rp200,000,000 (Article 33 paragraph (2) of the Currency Law). In addition, Article 30 paragraph (2) provides that the sentence imposed to corporation shall be in form of a fine with a maximum penalty provisions set out in the relevant articles, plus 1/3 (one third) of the penalty.

It is also said on Article 39 of the New Currency Law that if corporate offenders do not pay the fine, the Courts are empowered to order confiscation of assets of the corporation or its management.

*note: picture is taken from here.

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