Indonesia: Becoming an instant millionaire might be a thing of the past
WHEN tourists in Indonesia change money for the first time, they often get quite a shock.
Even changing a small amount of currency, in the region of US$100, means you will end up with a large wad of banknotes totaling around IDR1,335,774, becoming a millionaire in the process.
As of August 2017, US$1 amounts to around IDR13,357, but a fat wallet stuffed with millions of rupiah may soon become a thing of the past. The Indonesian government is now making moves for redenomination of the currency, which may shave up to four zeros off the rupiah.
The proposal comes from Bank Indonesia, but the government is supporting the redenomination Bill with Coordinating Economic Minister Darmin Nasution leading the charge. There is widespread support in the government for the Bill although Nasution has explained it is yet to be seen how it will be rolled out.
He said: “We have not decided yet whether we will scrap three or four zeroes from the rupiah… If three zeroes are removed, [the resulting figure] is familiar to many people; if you eat at a restaurant and see 40.00 on the menu, that means the price is IDR 40,000 [US$3].”
At the moment, the Indonesian rupiah is one of the least valuable currencies in the world, with coins ranging from IDR100 to IDR1,000 rupiah and notes from IDR1,000 to IDR100,000 rupiah.
The rupiah is also a relatively new currency in global terms and was only recognized as official currency in 1949 even though the first bank notes were printed in 1946.
The first form of currency in Indonesia appeared in around the ninth century when beads were used to make transactions. It wasn’t until the 12th century that gold and silver coins were put into circulation. The first banknotes, called “duit“, were printed by the Dutch East Indies Trading Company. When the Dutch became an official colonial power in the 1800s, they in turn introduced the gulden.
With the occupation of the Japanese during the World War II, however, Dutch banks were suppressed and the Japanese printed their own version of gulden before switching to a different version once independence began to seem like a serious prospect.
This was printed in Indonesian and called the Netherlands Indies roepiah which was arguably an early version of the rupiah used in Indonesia today. After independence in 1945, Indonesians refused to use gulden and phased out Netherlands Indies roepiah in favor of printing their own bank notes.
Now, with the idea of redenomination looming, Indonesian rupiah may change form once again. However, it is not the first time the idea of removing a few zeros from the currency has been discussed. In 2010 Indonesia looked at redenomination, but plans were put on hold due to worries that macroeconomic conditions were not stable enough.
For many Indonesians, however, the move is long overdue and the rupiah has become a source of international embarrassment. According to Darmin Nasution: “It’s for efficiency and also, a matter of prestige … Ask foreign tourists who exchanged US$300 for piles of rupiah banknotes,” he said. “They might have thought ‘What kind of country is this?’”
But not everyone is in a rush to give the rupiah a makeover. After all, when former president Sukarno suddenly devalued the rupiah by 75 percent in 1959, it caused a widespread backlash as many Indonesians refused to accept the devalued bank notes.
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This fed into much of the political turmoil of 1965, making many Indonesians wary of any changes to the currency, even though denomination and devaluation are different things entirely.
Critics in the current government include Fadli Zon who is a deputy speaker in the House of Representative for the opposition Gerindra Party, “The government should focus on reigning in the budget deficit” [which is approaching the three percent legal limit],” he said.
Despite Fadli’s worries, however, this seems as good a time as any to make the change to the rupiah, with Bank Indonesia governor Agus Martowardojo at pains to stress the positives of the current Indonesian economy, “Indonesia is economically and politically stable… This initiative is good for the economy. But of course, it will take years, as Indonesia is a large country and people have different levels of education.”
How many years is it likely to take exactly? Well, if Indonesia decided to remove three zeros from its currency tomorrow, the initial period of transition would take between one and two years. This would then probably be extended to around six or seven years to allow businesses to adjust to the move and for the old rupiah notes to be phased out of circulation completely.
Importantly, the move to redenomination will not affect the value of the rupiah. It will just be a way to make it simpler for both locals and visitors alike as well as play a strategic role in restoring national pride in the currency.
While many Indonesians may not have to explain the wayward zeros on their banknotes to tourists, for some employees at the front lines such as Indra Nugroho, who works in a bank in Jakarta, the rupiah has become an increasingly thorny issue: “Our money has been an object of ridicule for a long time and we are rather ashamed.”