Indonesia tomorrow – July 1 – will intensify its journey into economic isolationism when banking regulations go into effect banning the use of currencies other than the rupiah for settling domestic transactions. As much as US$12 billion a day in such settlements between domestic parties, including multinationals doing business in Indonesia, are expected to be banned and must be transacted in rupiah, which is expected to cause turmoil for both domestic and international companies, unloading currency risk onto local companies as the rupiah continues to descend in value. Roughly 45 percent of Indonesian working capital and investment lending in the last year was in foreign currencies, according banking research reports, and now will have to be settled in rupiah.

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