Definition of State Foreign Exchange to Sources of State Foreign Exchange

Sources of Foreign Exchange – In general, each country has its own way of making foreign payments. In the payment process, it is usually done using a transaction tool that we are more familiar with by the name of foreign exchange. Then, where does the country’s foreign exchange come from? Let’s learn together about the country’s foreign exchange and its sources, friends.

Definition of State Foreign Exchange

Foreign exchange is foreign currency that can be used as a means of payment abroad and can be accepted internationally. When talking about the source of the country’s foreign exchange, the main source is trade. Through trade, various kinds of foreign exchange transactions occur which are directly supervised by the monetary authorities in a country, such as the central bank.

The country’s foreign exchange is the country’s means of payment for international transactions. 

This means of exchange must go through a process of recognition by the whole international world. In this case, international exchanges, such as the United States Dollar, are the axis of world currencies and have recognition from the international community and can be a medium of exchange.

In a free economy, a country’s currency is valued according to the law of supply and demand. In other words, currency values ​​can be pegged to other countries’ currencies, such as the US dollar.

The value of a country’s currency can also easily go up and down depending on demand. If demand goes up, then the country’s government might increase its value.

The thing that is most often used as a medium of exchange is currency. This currency must be recorded at the central bank such as United States Dollars, Japanese Yen and there are several other currencies that are used.

In a country’s economic growth, the role of foreign exchange cannot be separated. This is because foreign exchange is one of the parameters of a country’s economic development. As you know, every country has its own currency.

To carry out trade between countries, it is necessary to have means of payment that can be accepted by both countries. Means of payment used in international trade are referred to as foreign exchange.

The form of foreign exchange consists of foreign exchange or national currency that can be accepted by almost all countries in the world such as US dollars, Japanese yen, European euros and British pounds, gold and securities.

However, not all foreign currencies can be called foreign exchange. This is because foreign currency that can be called foreign exchange is foreign currency that already has an official exchange rate record at the central bank, namely Bank Indonesia.

Foreign exchange earned by a country can be grouped into two, namely:

  1. General foreign exchange, foreign exchange obtained from the export of goods and sales of services.
  2. Credit foreign exchange, foreign exchange obtained from foreign loans.

State Foreign Exchange Function

Foreign exchange has the same function as money in general, it’s just that foreign exchange is used within the scope of international or inter-country transactions as a means of payment, exchange of goods and services, measuring and hoarding wealth, as well as a country’s monetary reserves.

The function of foreign exchange is as a means of payment for international transactions such as import activities, shipping services, official travel for officials, diplomatic corps fees abroad, student fees for studying abroad, and a means of making donations to other countries.

Both the government and the private sector conducting international trade must have foreign exchange reserves to maintain monetary and macroeconomic stability. For a country, foreign exchange reserves are a monetary indicator that shows a country’s economic strength. Foreign exchange reserves are defined as the amount of foreign currency reserved by the central bank for foreign financing and obligations.

The following are functions of foreign exchange, among others:

  1. Means of payment for goods exported and imported by a country. Such as electronic goods and others originating from abroad.
  2. Means of payment of foreign debt.
  3. Foreign relations financing tools, such as official travel, diplomatic corps expenses and foreign aid.
  4. Source of state revenue.
  5. It is a means of payment for capital goods imported by the country. like a production machine.
  6. As a means of payment for services to abroad. Such as freight shipping services or flight services for holidays.
  7. Financing an institution that is sent abroad for a specific purpose.
  8. As financing for youth and students who have studied abroad and they are all funded by the state.
  9. Sources of funds to build various public facilities in the country.
  10. As a means of giving donations to other countries that are experiencing a lot of difficulties. For example, a country that is experiencing calamities and natural disasters.

Foreign Exchange Sources

When talking about sources of foreign exchange, the main thing is trade. However, it turns out that there are also several sources of foreign exchange besides trade. Here are some sources of foreign exchange that you need to know.

1. Export Activities

One source of foreign exchange is from export activities between countries. The more exports of goods or services are carried out, the greater the foreign exchange income for the country.

If a country exports goods to another country, that country will earn foreign exchange from the importing country in the form of foreign exchange. The more goods that are exported, the more foreign exchange that will be obtained.

2. Trade in Services and Overseas Bungasari

Countries that are not rich in natural resources, usually rely on trade in services for their country’s source of foreign exchange. Receipt of services is the receipt of foreign exchange originating from the delivery of services abroad.

If, a country procures or organizes services for other countries, then the country will earn foreign exchange. For example, Indonesia sends its workforce to other countries, meaning that Indonesia will earn foreign exchange for services that have been used by other countries.

In addition to sending labor services, services exports can be in the form of services for shipping goods abroad as well as services from seaports and airports.

3. Tourism activities

Apart from trade, another source of foreign exchange comes from tourism activities, namely coming from visits by foreign and domestic tourists. The large number of tourists who come to Indonesia can increase the country’s foreign exchange.

Tourists who come from other countries, of course, will bring money from their home country. However, money from his country cannot be used in Indonesia. Therefore, it can be said that tourists must exchange their money into rupiah currency.

Converting foreign currency into rupiah currency will become foreign exchange for Indonesia. So, the more foreign tourists who come, the greater the country’s foreign exchange income will be.

4. Foreign Loans or Aid

This source of foreign exchange is usually used by third world or developing countries. This is because developing countries usually depend on assistance from abroad in their economy.

Foreign loans in the form of money can directly increase foreign exchange. This loan can be used to pay for all overseas financing. Even though there is an obligation to return, the money obtained from abroad will still add to the country’s foreign exchange.

5. Grants or Gifts from Overseas

This source of foreign exchange is non-binding in nature because grants or gifts from within or outside the country do not occur repeatedly.

Assistance obtained from abroad can be in the form of goods or money. If the assistance is in the form of goods, this can save the country’s foreign exchange because the state can obtain goods without having to pay for them. Meanwhile, assistance in the form of money can automatically increase the country’s foreign exchange.

6. Citizens Working Abroad

Another source of foreign exchange comes from citizens working abroad. These workers make a sizeable contribution to foreign exchange earnings through money transferred from the country where they work.

7. Import Duty Collection

Import duties obtained from fees for foreign goods imported into Indonesia can increase foreign exchange. The more flows of foreign goods that enter Indonesia, the more foreign exchange earned.

However, in reality, many goods enter without permission (smuggled), so this can reduce foreign exchange earnings for the country.

8. Remittances of Foreign Currency from Overseas

The number of workers working abroad is quite a lot, so that it can contribute quite a large amount of foreign exchange to the country. This can be seen from the activities of sending foreign money from workers working abroad to their families in their home countries.

Foreign money sent from abroad must be exchanged into rupiah currency at a foreign exchange bank. This exchange can add to foreign exchange savings for the country.

9. Interest or Income from Investments

Citizens who have investments, savings, or companies abroad, of course, will receive foreign exchange if the investment or company benefits in the form of interest or dividends.

Types of State Foreign Exchange

The following are the types of state foreign exchange quoted from various sources:

Foreign Exchange by Source

Foreign exchange by source is divided into two, namely:

1. Foreign exchange credit

Credit foreign exchange includes foreign exchange originating from foreign investment, foreign savings and foreign loans. For example, the government obtains loans from the World Bank, then these loans are distributed to the public in the form of foreign exchange credits

2. General foreign exchange

General foreign exchange is foreign exchange originating from other sources (other than credit), without any obligation to return it. For example, such as the export of goods and the provision of international services and the process of receiving interest from capital.

Foreign Exchange According to Its Form

Apart from referring to the source, foreign exchange can also be assessed from its form. Some of the foreign exchange included include:

1. Currency Exchange

Currency foreign exchange is foreign exchange in the form of banknotes or coins.

2. Demand Deposits

Demand deposits are foreign exchange in the form of securities. For example, money orders, checks, travelers checks or travelers checks, IMO or International Money Order) and others. If desired, this demand deposit can be converted or disbursed into currency exchange.

State Foreign Exchange Benefits

Foreign exchange also has various benefits for the country. The following foreign exchange benefits include:

  1. as an international medium of exchange
  2. As a means of payment for imported goods and services
  3. As a means of repaying foreign debt
  4. As a means of stabilizing a country’s currency
  5. As a means of financing foreign relations
  6. As a source of state revenue to finance development

Forms of Foreign Exchange

The type of foreign exchange can be in the form of foreign currency (foreign exchange), some gold, and securities.

1. Foreign Exchange

Foreign exchange is a currency that can be accepted by almost all countries in the world (such as US Dollars ($), Japanese Yen, Euros and Pounds Sterling) and can be traded. Usually the foreign exchange that is often used is the US Dollar.

2. Gold

After foreign exchange, there is also another form of foreign exchange, namely gold. Gold has a convertible nature, that is, all countries want to accept gold as a legal tender if it is in the form of bars.

3. Securities

Securities can also be a source of foreign exchange for the country. Countries can provide securities such as:

  • Special Drawing Rights (SDR), namely credit rights for IMF member countries aim to help countries that experience difficulties in international payments.
  • Cable Order (Telegraphic Transfer) is a check sent by telegram, radiogram or telephone from a domestic bank to an overseas bank.
  • Bill of Exchange (Wesel) is an order to the bank to pay a certain amount of money to someone.
  • Traveler’s Check (TC) is a traveler’s check usually carried by a tourist and can be cashed at representative banks.


If a country does not have foreign exchange reserves, then the country may experience destruction because the economy is getting weaker. Therefore, the government should regulate the country’s foreign exchange reserves so that the country’s economic condition can be maintained. Each country has its own way of making the country’s foreign exchange reserves.

Thus the discussion about the country’s foreign exchange to the source of the country’s foreign exchange. Hopefully this article can add to your insight and be useful for you.