Bank Indonesia (BI) has announced plans to introduce a domestic credit card system to reduce the country’s reliance on foreign payment networks and providers, such as Visa and Mastercard. The decision follows President Jokowi’s call for greater independence of Indonesia in financial transactions to mitigate risks from geopolitical fallout, citing US-Russia tensions that have led to US sanctions forcing Visa and Mastercard to render their services inoperable for credit cards issued in Russia.
BI spokesperson Erwin Haryono described the overreliance on foreign providers as “terrifying”. While BI’s move is linked to the risks of Indonesia being subjected to potential secondary US sanctions against countries conducting trade with Russia, it is also notable that it comes at a time when global financial regulators see the heightened need to build resilience in their domestic financial systems from international shocks, such as the fall of Silicon Valley Bank and Credit Suisse in March 2023. One can expect to see further moves by central banks to strengthen their domestic payments and settlement systems to insulate themselves from the impact of future financial crises.
Indonesia’s successful development of a domestic payments settlement system with homegrown credit cards can also unlock significant benefits beyond enhancing domestic financial resilience. These include lower fees and processing times and greater traceability and accountability in government transactions. Regardless, the impact of BI’s proposed domestic credit card system will depend on the scope and degree of regulation. If BI intends to make it mandatory for local banks to issue domestic credit cards (it is currently optional), foreign providers may face greater barriers to operating in Indonesia. On the other hand, a renewed focus on growing domestic service providers can create economic opportunities for local entrepreneurs, resulting in economic growth and new jobs.
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