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Editorial: No Need to Rush Redenomination
August 04, 2010

Redenominating the rupiah is a huge and serious exercise. BI should not push ahead without proper consideration of the impact on the economy and savings of ordinary Indonesians. (Reuters Photo/Crack Palinggi) Redenominating the rupiah is a huge and serious exercise. BI should not push ahead without proper consideration of the impact on the economy and savings of ordinary Indonesians. (Reuters Photo/Crack Palinggi)
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It may only be a study, but the news that Bank Indonesia is considering redenominating the rupiah will send shivers through the economy and the business community. True, many other countries have already carried out similar moves but they all came with mixed results.

The central bank confirmed yesterday that it was examining the idea of lopping off a couple of zeros from the currency to make transactions more efficient.

Thankfully, Bank Indonesia seems to be in no rush to implement what many analysts consider a long-overdue idea.

Darmin Nasution, the central bank governor, told journalists that a study of the proposal was expected to be completed by the end of the year and that the entire process would take about 10 years to fully implement.

Rumors of the possible redenomination have already sparked concern among the business community and official clarification was needed to allay fears that the move would involve a devaluation of the currency.

The Bank Indonesia governor was at pains to stress that the value of the currency will remain the same, and that the move was completely different from a devaluation, a step usually taken when inflation is no longer controllable.

He said the redenomination of the rupiah would have a number of benefits, including reducing inflation and increasing efficiency in the move toward a cashless society.

To be honest, there is no doubt that the move has its merits. Today, in real terms, one rupiah no longer has any value. And if one finds it necessary to carry a large amount of money, it would certainly not go unnoticed.

With Rp 100,000 ($11.20) being the highest denomination banknote, wallets must bulge in order to carry any meaningful sum.

And in practical terms, the lopping off of the zeros has already become an increasingly common practice among restaurateurs, who wisely keep the zeros off their menus.

But there are also some prerequisites to be met for the successful implementation of the idea.

The redenomination process requires a stable economy with low inflation, tight fiscal discipline and strong political will.

Darmin added that he hoped the House of Representatives would include redenomination in its discussions of the currency bill, which is scheduled for debate this year.

The process would also incur huge costs as the central bank would have to recall all existing currency in circulation, both notes and coins, and issue new ones.

Where will the funding for such a massive exercise come from?

What is certain is that this idea requires serious deliberation. Vice President Boediono has rightfully called for calm as he noted that at the moment it is still purely at the study stage.

Redenominating the rupiah is a huge and serious exercise. BI should not push ahead without proper consideration of the impact on the economy and savings of ordinary Indonesians.