Hong Kong, Indonesia to set up payment system link

The Hong Kong Monetary Authority has signed a memorandum of understanding with Bank Indonesia to establish a large-value payment-system link between Indonesia and Hong Kong, set for completion in 2009.

The two central banks will set up a link between the Indonesian rupiah real-time gross settlement system (RTGS) in Indonesia and the US dollar RTGS system in Hong Kong.

RTGS is a funds transfer mechanism where transfer of money takes place from one bank to another on a 'real-time' and on a 'gross' basis, where payment transactions are settled as soon as they are processed. Under RTGS, transactions are settled on a one-to-one basis without connecting to any other transaction.

Reducing foreign-exchange risks

According to the Hong Kong Monetary Authority, this will be a cross-border payment-versus-payment link between two RTGS systems for two different currencies in the Asian region, and will reduce foreign-exchange settlement risks during business hours in Indonesia and Hong Kong.

Under the payment-versus-payment mechanism, the delivery of a currency in a foreign-exchange trade is conditional upon the delivery of the other currency in the trade, thus reducing the risk of non-delivery of any currency through real-time settlement in the same time zone.