Law No. 7 of 2011 related to currency law came into effect on 28 June, 2011. The Currency Law is the implementation of Article 23B of the 1945 Constitution which states that the types and value of the currency are to be further regulated under a law.
At the same time as many of the provisions of the Currency Law relate to the denominational and physical aspects of Indonesias currency (both in terms of banknotes and coins), it is the necessities on the compulsory use of Rupiah that will be of most interest and imperative concern to businesses making or charging foreign currency payments in Indonesia. It is principally this aspect of the Law that is discussed in this Advisory. Note that the Republic of Indonesia is defined in the Currency Law as all territories of Indonesia including any Indonesian-flagged ships or planes, Indonesian Embassies and other representative offices of the Republic of Indonesia overseas. Use of Rupiah currency Under Article 21 of the Currency Law, Rupiah must be used for any payments or the settlement of obligations or other financial transactions in the Republic of Indonesia with exemptions allowed for:
- certain transactions related to the state budget
- income and grants to and from foreign countries
- international trade transactions
- deposits in foreign currency in banks an
- international financing transactions.
The Currency Law does not stipulate or clarify what transactions may be classified as international trade transactions. This issue will be further regulated in the implementing regulation. Pending the dissemination of the implementing regulation, some jurists are of the view that foreign currencies may still be used for commercial transactions involving foreign parties. In addition, Article 23(1) of the Currency Law prohibits anyone from refusing to accept Rupiah currency in payment or settlement of any obligation which must, under the Currency Law, be fulfilled using Rupiah and/or for other transactions which take place within Indonesia, unless there is concern about the substance of the Rupiah. Article 23(1) does not however apply where payment of an responsibility in foreign currency has been agreed to in writing.
From Article 23, we may conclude that parties may use foreign currencies rather than Rupiah for their transactions provided that the parties have previously agreed to do so in writing. However, the Vice-Head of Commission XI of the House of Representatives in a recent seminar on the Currency Law stated that this exception only applies to the obligation to accept Rupiah, not the obligation to use Rupiah. This issue will be further regulated in the implementing regulation. Until we have a clear explanation to this issue, if a payment in foreign currency has been agreed upon in writing, we believe that the payer will be allowed to pay in foreign currency by virtue of the contractual agreement even though the Currency Law pertains no transitional provisions dealing with contracts already in existence on 2 June, 2011. Sanctions Under Article 33 of the Currency Law, the penalty for a breach of the provisions of Articles 21(1) and 23(1) (see above) is imprisonment for up to 1 (one) year and a fine of up to IDR 200,000,000. It is further explained that if the sanction is imposed on a company, the maximum fine will be 1/3 greater than that stated in Article 33 and additional sanctions may also be imposed, e.g. revocation of the companys business license and/or the seizure of certain goods owned by the guilty party. But , since the implementing regulation for the Currency Law has not yet been promulgated, an official of the Indonesian Police Force explained in the seminar referred to above that the Indonesian Police Force will be very cautious to prosecute violators of the obligation in the Currency Law to use Rupiah or the prohibition against refusing to accept Rupiah.