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Rupiah Redenomination Has Government Support but Timing Uncertain

The Indonesian rupiah might soon be getting a long overdue overhaul. A “redenomination bill” has been proposed by Bank Indonesia that would prepare the way to scrap as many as four zeros from the country’s rupiah notes. The bill has gained wide support in government, although the timing of its implementation remains uncertain.

Importantly, any redenomination would be aesthetic in nature and would not affect the price of rupiahs in foreign exchange markets. “This is for efficiency purposes only,” said Indonesia’s vice president, Jusuf Kalla, in July.

For too long the rupiah has been a source of comedic value for many visitors to Indonesia who become instant millionaires upon changing their first $100 (worth Rp.1,334,000). This, of course, is because rupiah exchange rates have risen in recent decades to ridiculous levels (see ‘Exchange Rates’, below). The currency has been ravaged by inflation for much of its history and is now one of the least valuable units of currency in the world.

Frankly, with most Indonesians ignoring the final three zeros when noting the prices for food, goods and service, it is no wonder that the subject of redenomination has been discussed since 2010.

While a single dish of local cuisine and a drink in a Jakarta café might cost between Rp.50,000 and Rp.100,000, when it’s time to pay the bill, it’s likely that an Indonesian will simply be told, or acknowledge, “fifty” or “one hundred.” For many Indonesians, especially those who frequently face questions from tourists about these seemingly unnecessary zeros, the rupiah is a source of national embarrassment.

Earlier this year, the governor of Bank Indonesia, Agus Matowardojo, stressed that now was the time for redenomination given the prevailing economic conditions and reiterated his call for the government to act swiftly.

“Everything is good, so it is time to redenominate our currency. They need to deliberate [the bill] now,” said Agus in May.

“The political and economic conditions are currently stable enough,” he added in July.

It is thought that a redenomination could only take place when inflation is running at levels between 3% and 4% in order to prevent the rupiah weakening further post-redenomination. Over the past two decades, inflation has averaged a little more than 10% in Indonesia but has fallen significantly in the past two years. In the year to July-31, inflation stood at 3.9% and little change to that number is expected on September 4th when data for the month of August is released. Inflation in 2010, when redenomination was also discussed, ran as high as 7% towards the end of the year.

Much of the rationale for moving now on redenomination is simply that the entire process takes a long time. According to some estimates, as long as eleven years; according to others, six or seven years.

To the dismay of Governor Agus and many Indonesians, comments made by Indonesia’s president, Joko Widodo, don’t seem to express the same sense of urgency on the issue.

Hinting that nothing would be done about the redenomination bill in the short term, Widodo said in July that it was “a very long way away…we are still discussing.”

 

Exchange Rates

On Wednesday, Dutch bank ABN Amro upgraded their forecasts for the rupiah. The bank now sees the dollar fetching Rp.13,400 at year-end, from Rp.13,700, and Rp.13,200 at the end of 2018, from Rp.13,300.

Although the rupiah has been remarkably stable this year against the US dollar, which currently buys Rp.13,340, it does remain weak against many of the other FX majors.

Against the euro (Rp.16,095), Swiss franc (Rp.14,155) and Japanese yen (Rp.123.16), the rupiah fell last week to 22-month, 20-month and 9-month lows respectively.

Against the Canadian dollar (Rp.10,691), the rupiah remains close to long-term lows, having fallen 11% against the ‘loonie’ since May.

Readers can get their hands on Indonesian currency at far better exchange rates than those on offer at the banks and airport money changers by using BER’s online comparison calculators for IDR travel cash and IDR foreign currency transfers.

Consider that with today’s best value FX provider, a money transfer of Rp.200,000,000 would cost only US$15,523 – a saving of US$440 on today’s Bureau de Change average.

 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.