Indonesia Zeroes In on Currency

By I Made Sentana
Indonesian rupiah banknotes of various denominations.
JAKARTA – Dutch tourist Margaret Masteling didn’t know one of her most memorable sights in Indonesia would be right on its bank notes. The rupiah has zeros – lots of them.

“At first it was confusing to see many zeros,” Masteling said in a hotel lobby here. “But I got used to it after a few days.”

All the zeros can be dizzying to a tourist being asked for 20,000 rupiah for a tall Starbucks SBUX +0.33% Americano (about $2). And, the government says, all those zeros slow down cash transfers and hurt the Southeast Asia country’s global image.

That may change soon.

The government began a push Wednesday to educate the public about why it makes sense to drop at least some of the zeros. The challenge is to do that without setting off alarms for everyday Indonesians that the some of the value of the money is going to be erased with some of the zeros.

“Probably for many foreigners who come for the first time to Indonesia, what they notice first is our currency. Their opinion of Indonesia might immediately drop when they see the prices are in hundreds of thousands of rupiah,” Bank Indonesia Governor Darmin Nasution said in a speech Wednesday.

Finance Minister Agus Martowardojo chimed in at the event that erasing a few zeros from the currency will make cash transactions simpler.

“Too many digits in our currency could potentially create a problem because the value of the transactions may exceed the number of digits that our payment and recording infrastructures can tolerate,” Mr. Martowardojo said.

Indonesia officially named its currency the rupiah on Nov. 2, 1949, borrowing from the Indian rupee. During the 1997-98 Asian financial crisis, the rupiah’s value nosedived by nearly 85% against the US dollar, and by 78% against prices of goods and services.

As prices went up to hundreds of thousands of rupiah, Bank Indonesia for the first time in 2004 introduced the 100,000 rupiah bank note. That’s the biggest rupiah bill today, meaning an American tourist would need to hand over about 30 individual 100,000 rupiah bills to cover a $300 hotel bill. It also means that locals have to carry lots of bank notes to get through the day.

“The idea is good because that could mean I will carry less bank notes in my wallet,” said Muhamad Yamin, a bell boy at a five-star hotel in Jakarta.

But Mr. Yamin has some worries. He’s apprehensive that some traders might jump on any redenomination of the rupiah to jack up prices for quick profits. He urged the government to impose heavy penalties to unscrupulous traders.

The idea was first privately mulled over by the central bank in 2007. It started to air the idea publicly two years ago, arguing the country’s improving economic fundamentals would ensure success. Indonesia, Southeast Asia’s largest economy, grew 5.8% on average between 2006 and 2011, while inflation averaged 6.3%.

It’s unclear how many zeros might eventually be omitted from the rupiah, but central bankers have said the authorities may follow the voluntary redenomination already practiced by merchants, hotels, and even rice traders. For several years, they’ve posted their prices without the three last zeros.

But, if all goes as hoped for by the government, it could take several years to change the rupiah’s zeros to calm any fears in the public that the money won’t be worth less. The parliament would need to pass a bill that has already been submitted. Given the government’s big push and business support, it’s expected to eventually pass and be implemented.

Bank Indonesia’s Nasution said during a transition period, which could take between two to three years, the authorities would require double price tagging. Meanwhile, Bank Indonesia would start circulating new bank notes with fewer zeros.


About Stephen Booth

Surface Engineering, HVAF, HVOF, APS Coating technologies expert in Asia
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