Board of Governors Member Regulation Number 20 of 2026 Establishes a Foreign Exchange Hedging Scheme through Partnership Banks for Global Investors

Introduction

On 23 July 2026, Bank Indonesia enacted Board of Governors Member Regulation Number 20 of 2026 on Foreign Exchange Market Transactions for Hedging through Partnership Banks (“PADG 20/2026”). PADG 20/2026 expands foreign exchange market services and transaction innovations involving the rupiah for hedging purposes for offshore market participants through a cross-border interbank partnership scheme.

PADG 20/2026 was issued in response to the increasing dynamics of global financial markets that have the potential to affect the stability of the rupiah exchange rate and the domestic financial market. To provide legal certainty for the implementation of hedging transactions by foreign investors, PADG 20/2026 regulates a transaction mechanism that supports the smooth implementation of portfolio investment in Indonesia while strengthening the mitigation of speculative risks by requiring that every foreign exchange transaction be based on genuine economic activity in the form of ownership of portfolio investment assets in Indonesia.

Key Provisions

Partnership Transaction Scheme and Participants

Pursuant to Article 7 and Article 8, the foreign exchange market transaction mechanism under PADG 20/2026 involves three principal parties, namely the Domestic Partnership Bank (DPB), the Offshore Partnership Bank (OPB), and the Registered Global Investor (RGI).

Furthermore, Article 15 provides that transactions must be carried out through a back-to-back scheme, whereby the RGI first enters into a foreign exchange transaction with the OPB, which is subsequently passed on by the OPB to the DPB in Indonesia. The onward transaction must fully correspond (mirror transaction) to the original transaction, including the type of transaction, currency, nominal value, tenor, and transaction date.

Underlying Asset Requirement

Article 10 emphasizes that all hedging transactions must be based on underlying economic activity and may not be used for speculative purposes.

In this regard, every transaction must be supported by lawful ownership of portfolio investment assets in Indonesia registered in the name of the RGI. Portfolio investment assets recognized as the underlying transaction include:

·      Rupiah-denominated Government Securities (Surat Berharga Negara/SBN);

·      Bank Indonesia Rupiah Securities (Sekuritas Rupiah Bank Indonesia/SRBI);

·      Bank Indonesia Sukuk (Sukuk Valas Bank Indonesia/SUVBI); and/or

·      other rupiah-denominated instruments designated by Bank Indonesia.

Limits on Outstanding Transaction Positions

To control transaction risk exposure, Article 14 establishes the maximum outstanding foreign exchange transaction positions against the rupiah that may be entered into by an RGI, as follows:

• The outstanding position for foreign exchange purchase transactions against the rupiah is limited to a maximum of 100% (one hundred percent) of the value of the RGI’s portfolio investment assets in Indonesia.
• The outstanding position for foreign exchange sale transactions against the rupiah is limited to a maximum of 25% (twenty-five percent) of the value of the RGI’s portfolio investment assets in Indonesia.
• The value of the portfolio investment assets used as the basis for calculating the transaction position limit shall be determined based on the nominal value 1 (one) Business Day prior to the transaction date, using a recognized reference exchange rate, such as the Jakarta Interbank Spot Dollar Rate (JISDOR).

Centralized Approval and Reporting Obligations

Pursuant to Article 18, a bank domiciled in Indonesia may perform the function of a DPB only after obtaining designation from Bank Indonesia. In addition, the OPB and RGI must be registered with Bank Indonesia through the DPB as part of the partnership establishment and approval process.

Furthermore, Article 38 and Article 39 require the DPB to submit reports to Bank Indonesia completely, accurately, and in a timely manner, as well as to maintain the confidentiality of data and information relating to the OPB and RGI in the implementation of the partnership.

The reports required to be submitted by the DPB consist of:

• Periodic Reports, namely reports on the implementation of Foreign Exchange Market Transactions through Partnership Banks containing, at a minimum, transaction data, OPB data, and RGI data.
• Incidental Reports, namely reports submitted for the purpose of updating information, including changes to the DPB profile data and changes to the OPB and/or RGI profile data.

Through this mechanism, Bank Indonesia strengthens its supervisory function through an integrated reporting system while ensuring the accuracy of participant and transaction data within the foreign exchange market partnership scheme.

Exit Policy for Foreign Exchange Market Transaction Participants

Pursuant to Article 52, PADG 20/2026 regulates an Exit Policy mechanism as an instrument enabling Bank Indonesia to terminate the participation of DPBs, OPBs, and RGIs in the foreign exchange market transaction scheme through partnership banks.

The Exit Policy is implemented through the revocation of a DPB’s designation and/or the revocation of the registered status of an OPB or RGI. Such revocation may be carried out based on the results of Bank Indonesia’s supervision or evaluation, corporate actions, a court decision having permanent legal force, voluntary requests, or other considerations determined by Bank Indonesia.

Administrative Sanctions

To ensure compliance with the applicable provisions, Article 47 regulates the imposition of administrative sanctions. Such sanctions may be imposed where the relevant party violates the provisions concerning transaction position limits, the partnership mechanism, or reporting obligations.

Bank Indonesia is authorized to impose sanctions progressively according to the severity of the violation, ranging from a written warning and temporary suspension of transaction activities to the revocation of the designation as a DPB or the revocation of the registered status of an OPB and/or RGI.

The imposition of sanctions in the form of revocation of such status results in the termination of the partnership relationship and the right to conduct foreign exchange transactions within the partnership framework as regulated under PADG 20/2026.

Closing

PADG 20/2026 establishes the legal framework for foreign exchange hedging transactions against the rupiah through a partnership scheme involving DPBs, OPBs, and RGIs. PADG 20/2026 provides legal certainty for global investors in conducting hedging transactions while strengthening Bank Indonesia’s efforts to maintain the stability of the rupiah exchange rate through a mechanism based on genuine economic activity.

Following the entry into force of PADG 20/2026, DPBs, OPBs, and RGIs should ensure compliance with all prescribed requirements, including the fulfillment of the underlying asset requirement, transaction position limits, the back-to-back transaction mechanism, reporting obligations, and the Exit Policy provisions. Transaction participants should pay close attention to compliance with these requirements in order to maintain their participation in the foreign exchange market transaction scheme through partnership banks while minimizing the risk of administrative sanctions or termination of partnership status by Bank Indonesia.