De-Dollarization Trends in Southeast Asia: Assessing Indonesia's Monetary Sovereignty

Abstract

Please be aware that in the past two decades, de-dollarization efforts in the
Southeast Asian region, particularly Indonesia, have shown significant
increases in response to global economic uncertainty and the dominance of the
U.S. dollar. This study aims to analyze the trend of de-dollarization in Indonesia,
evaluate its impact on monetary sovereignty, and formulate policy
recommendations to strengthen Indonesia's position in the regional financial
system. Using a qualitative descriptive approach with documentary analysis and
secondary quantitative data from official institutions (Bank Indonesia, IMF,
ADB, AMRO), this study explores the dynamics of the use of local currencies in
bilateral transactions and the diversification of foreign exchange reserves. The
results show a significant increase in transactions using the rupiah, especially
through the Local Currency Settlement (LCS) framework with Malaysia and
Thailand, which increased from 8% in 2017 to 18% in 2022. Additionally, the
proportion of foreign exchange reserves held in non-dollar currencies increased,
thereby strengthening exchange rate stability and enhancing national monetary
policy flexibility. However, structural challenges such as limited financial
infrastructure, foreign investor dominance, and economic openness still limit
full monetary sovereignty. These findings emphasize the importance of regional
policy synergy, strengthening the domestic real sector, and building an inclusive
digital financial system. This study makes conceptual contributions to the de
dollarization literature and offers strategic recommendations for policymakers to
optimize Indonesia's monetary autonomy amid global dynamics.