Board of Governors Regulation Number 4 of 2026 Expands the Use of Bank Indonesia Foreign Exchange Instruments in Monetary Operations

Introduction

On 17 March 2026, Bank Indonesia issued Board of Governors Regulation Number 4 of 2026 on Amendments to Board of Governors Regulation Number 18 of 2025 on Criteria, Requirements, and Use of Securities in Monetary Operations (“PADG 4/2026”), which took effect on that date. This regulation aims to update provisions relating to the criteria, requirements, and use of securities utilized by participants in monetary operations when transacting with Bank Indonesia.

PADG 4/2026 responds to increasingly complex challenges in managing foreign exchange liquidity amid global and domestic uncertainties. Bank Indonesia considers it necessary to strengthen instruments for managing such foreign exchange liquidity. This strengthening is carried out by expanding the types of foreign exchange securities that may be used by participants in monetary operations. This is expected to support the integrated development of the money market and the foreign exchange market.

 

Comparison

PADG 4/2026 amends and supplements several provisions in Board of Governors Regulation Number 18 of 2025 on Criteria, Requirements, and Use of Securities in Monetary Operations (“PADG 18/2025”). The following table presents a comparison between PADG 4/2026 and PADG 18/2025:

 

Key Provisions

Expansion of Foreign Exchange Securities Instruments

Pursuant to Article 11 paragraph (1), Bank Indonesia expands its monetary operation instruments by adding SVBI and SUVBI to the list of securities issued by Bank Indonesia. This addition also amends the formulation of Article 15 paragraph (1), which now recognizes SUVBI as a sharia-compliant security issued by Bank Indonesia.

Utilization of Instruments in Monetary Transactions

With respect to usage procedures, Article 12 paragraph (2) grants Conventional Monetary Operation Participants the right to use SVBI and SUVBI in the implementation of Conventional Foreign Exchange Repo Transactions. Meanwhile, for sharia entities, Article 16 paragraph (3) facilitates the use of SUVBI for Foreign Exchange PASBI Transactions.

Tenor Requirements for Foreign Exchange Securities

According to Article 13 paragraph (1a), participants are required to ensure that SVBI and SUVBI used have a minimum remaining maturity of 3 Working Days at the settlement of the second leg of Conventional Foreign Exchange Repo Transactions. In addition, Article 17 paragraph (3) stipulates a similar requirement for sharia instruments, whereby SUVBI must have a minimum remaining maturity of 3 Working Days at the time participants conduct fund repayment in Foreign Exchange PASBI Transactions.

Pricing Mechanism for Foreign Exchange Instruments

Pursuant to Article 19 letters f1 and f2, Bank Indonesia establishes a mechanism to determine the price of new foreign exchange instruments used in monetary operations. Bank Indonesia determines the price of SVBI by considering the weighted average of discount rates at issuance, the remaining maturity of each SVBI series, and/or other supporting variables. For sharia-based instruments, Bank Indonesia determines the price of SUVBI by calculating the issuance price, the applicable return rate, the ongoing tenor, and/or other relevant variable indicators.

Mitigation of Settlement Failure through Early Redemption

To safeguard the market from default risk, Article 27 paragraph (2) stipulates that Bank Indonesia is authorized to conduct early redemption of SVBI and SUVBI. The triggers for such action are detailed as follows:

1. SVBI: Pursuant to Article 31A paragraph (1), Bank Indonesia will redeem SVBI prior to maturity in the event of a settlement failure in the second leg of a Conventional Foreign Exchange Repo Transaction using SVBI. 
2. SUVBI: Pursuant to Article 31B paragraph (1), Bank Indonesia will redeem SUVBI prior to maturity if participants experience a settlement failure in the second leg of a Conventional Foreign Exchange Repo Transaction, or a settlement failure in fund repayment (second leg) in a Foreign Exchange PASBI Transaction. 

Closing

PADG 4/2026 is issued to address challenges in managing foreign exchange liquidity by expanding monetary operation instruments through the addition of SVBI and SUVBI. This regulation stipulates that both instruments may be used in Conventional Foreign Exchange Repo Transactions, and specifically for SUVBI, may facilitate Foreign Exchange PASBI Transactions for sharia entities, subject to a minimum remaining maturity of 3 Working Days at the settlement of the second leg. In addition to regulating pricing mechanisms, this regulation mitigates settlement failure risks through Bank Indonesia’s authority to conduct early redemption, which overall aims to support the integrated development of the money market and the foreign exchange market.