Russia and Indonesia: National Currency Settlements as Part of a New Trade Reality

Political Signal and Economic Logic

Indonesia's Minister of Industry announced plans to expand the use of national currencies in trade with Russia. The two sides are discussing a transition to settlements under the Local Currency Settlement (LCS) mechanism, which involves using the ruble and the Indonesian rupiah.

According to World Bank and IMF data, Indonesia's GDP stands at approximately $1.4 trillion, while Russia's is around $2 trillion in nominal terms for 2025. Meanwhile, bilateral trade turnover is estimated at roughly $4-5 billion annually, representing less than 1% of each country's foreign trade.

According to the minister, switching to national currency settlements should reduce currency risks and diminish trade sensitivity to external financial pressure. This logic aligns with a global trend: BIS data shows the dollar remains the dominant reserve currency with a share of around 58%, though it is gradually losing ground amid the development of regional settlement systems.

Trade Scale and Structure of Economic Ties

Indonesia conducts foreign trade worth over $500 billion annually. Its main trading partners are China, the United States, ASEAN countries, and Japan. Russia's foreign trade turnover in recent years has been estimated at approximately $600-700 billion, according to international statistics and national sources.

The structure of mutual trade between both countries features a high share of commodities. Indonesia primarily exports palm oil, rubber, coal, and agricultural products, as well as select manufactured goods. Russia supplies oil and petroleum products, gas, fertilizers, grain, and metallurgical products. This structure makes trade relatively straightforward in composition and tied to global commodity prices.

Against this backdrop, mutual trade remains modest. According to estimates for 2025 announced by Russia's Ministry of Industry and Trade, trade turnover between Russia and Indonesia for January-October grew by nearly 18% to reach approximately $3.6 billion. Roughly 40% of this volume consists of manufactured goods.

In 2024, the trade structure remained commodity-based and fairly concentrated. According to industry publications, Indonesia supplied Russia with approximately 795,500 tons of agricultural products worth roughly $1.08 billion. The bulk of these supplies consisted of palm oil (around 49.7%), palm kernel oil and babassu oil (11.7%), coffee (9.7%), and cocoa products including butter and powder (approximately 12-13% combined).

Russia supplies Indonesia with grain (primarily wheat), fertilizers, petroleum products, and metals. These categories form the bulk of Russian exports to the country, as they are mass commodities with transparent global pricing.

This structure makes trade relatively straightforward and predictable: it's primarily commodities and basic goods that trade at global prices and don't require complex financial arrangements. As a result, despite the modest trade volumes, this corridor is often viewed as a convenient "testing ground" for new settlement mechanisms, including the use of national currencies.

Local Currency Settlement as a Tool for Financial Autonomy

The Local Currency Settlement system is a mechanism whereby trade operations between countries are conducted directly in national currencies without mandatory conversion into U.S. dollars. In the case of Russia and Indonesia, this means the possibility of settlements in rubles and Indonesian rupiah through agreed banking channels and clearing arrangements.

Indonesia is already actively developing its Local Currency Settlement system with a number of regional countries. Such mechanisms are currently operational with Malaysia, Thailand, Japan, China, and South Korea. According to Bank Indonesia data, transaction volumes through local currency mechanisms in certain directions are growing at double-digit rates annually, and the program itself is viewed as a tool for reducing currency risks and dollar dependence in regional trade.

On the Russian side, similar processes are coordinated by the Bank of Russia. After 2022, the share of national currencies in foreign trade settlements increased substantially. According to Central Bank data, by the end of 2024 more than 80% of Russia's settlements with Asian countries were already conducted in rubles and currencies of friendly states, while the ruble's share in payment for Russian exports exceeded 40%. In parallel, bilateral currency mechanisms and alternative payment channels are being developed, which allows for reduced dependence on traditional dollar-based infrastructure and expanded use of national currencies in foreign trade.

Potential and Limitations

If settlements between Russia and Indonesia are switched to national currencies, this will primarily affect simple commodities. That means agriculture and raw materials. Indonesia sells palm oil and other commodities, Russia sells grain and fertilizers. In such transactions it's easier to reduce transfer costs and minimize risks from exchange rate fluctuations.

This could also help in energy and industrial trade. If direct settlements between banks of the two countries emerge, companies will be able to conclude long-term contracts more easily and depend less on intermediary currencies. This is especially important when commodity prices are highly volatile. 

But there are limitations as well. The main issue is the relatively small trade turnover between Russia and Indonesia. For settlements in rubles and rupiah to work effectively, companies in both countries must regularly purchase goods from each other. If one side sells significantly more than it buys, an imbalance in currency demand emerges. As a result, some market participants may still prefer settlements through the dollar or other reserve currencies. The system also requires direct interaction mechanisms between banks of the two countries. 

The more volatile the exchange rates, the higher the risks for companies in long-term contracts. Moreover, a broad transition to settlements in national currencies requires sufficient mutual trade volumes, demand for both countries' currencies, and developed banking settlement mechanisms. 

BRICS and the Broader Context of Financial Transformation

The development of national currency settlements between Russia and Indonesia should be viewed in the context of broader processes related to the transformation of global financial architecture and the strengthening role of regional associations, including BRICS. Within this framework, discussions are underway on expanding the use of national currencies, creating alternative settlement infrastructures, and reducing dependence on traditional reserve currencies.

Although Indonesia is not a full member of the bloc, it actively participates in dialogue with BRICS and demonstrates interest in financial diversification mechanisms. This allows it to be viewed as part of a broader group of countries seeking greater autonomy in international settlements without abruptly breaking from the existing system.

Gradual transformation instead of abrupt restructuring

The initiative to expand the use of national currencies in trade between Russia and Indonesia reflects a gradual adaptation to changing conditions in the global economy. At current trade volumes, this corridor is becoming a convenient platform for testing new financial mechanisms, primarily the LCS, which helps reduce currency risks and simplify settlements between countries.

At the same time, the scale of the effect will be determined not so much by political statements as by the development of banking infrastructure, the stability of national currencies, and businesses' willingness to transition to new settlement models.