Rupiah redenomination plan is rolling again

JAKARTA. The discourse on rupiah redenomination has not yet been settled since 2010. In fact, the bill on Rupiah Redenomination had been included in National Legislation Program since 2013.

Therefore, BI (the Central Bank) has requested support from President Joko Widodo to accelerate the settlement of the bill on Rupiah Redenomination.

BI even will approach DPR (House of the Representatives or Parliament) to include the bill in 2017 Priority National Legislation Program. Previously, the DPR had rejected the request from government to include the bill in 2017 National Legislation Program.

Governor of BI Agus Martowardojo said that the bill has to be settled in an immediate time, since the redenomination will take a longer transition period.

If the law is passed into law at the end 2017, the law will need two years to be prepared , as well as a seven-years transition period.

During the transition period, the old denominations and new denominations are circulating , while the services and goods would be simplified. Therefore, the transition period will not affect to inflation.

“The government and DPR are prioritizing the discussion on the law on tax and non-taxation state revenues,” Agus said, Monday (19/12).

Not urgent
Agus said that redenomination is not a sanering. In this case, the redenomination would only simplify the nominal unit without changing the currency value. The redenomination will eliminate three zeros from the money. For an example, from Rp 1,000 to Rp 1.

Senior Deputy Governor of BI Mirza Adityaswara is optimistic that the redenomination will not affect to the rupiah exchange rate, as long as the economic condition is stable. He is also optimistic that the redenomination will not affect the inflation.

Mirza estimates that situation in 2017 will be conducive for discussing the bill. “It would be better if the bill is discussed in 2017 National Legislation Program,” he added.

Economist at Kenta Institute Eric Sugandi said that the redenomination is not urgent. However, the redenomination will have positive impacts if it is implemented. First, the redenomination will affect to public psychology, as the public will assume to have a stronger currency. “Second, the redenomination will simplify the calculation sysyem,” Eric said.

However, the redenomination may also bring negative impacts. At a certain level, the rounded price may generate inflation. Furthermore, companies and banks need to spend certain costs to replace the system. However, “It will not be long,” he said.

Eric suggested stable and low inflation rate to make the program effective. In addition, the government needs to socialize the program to prevent public misunderstanding on the program as sanering.

Economist at Samuel Aset Manajemen Lana Soelistianingsih said that the redenomination requires a stable inflation rate at minimum five years. The inflation rate during the recent two years stand at the range of 3%. “Therefore, we need to have a stable inflation rate in three years ahead,” Lana said.

BI and the government need to ensure that public will be familiar with the small nominal currency. Therefore, BI needs to provide small nominal currencies, such as Rp 25, Rp 50, and Rp 100. “If people are unfamiliar with the small nominal currencies, the redenomination can increase the price and inflation rate,” Lana added.

The rounded up price may trigger the core inflation rate. Therefore, according to Lana, it takes a long time period to ensure the stable inflation rate and to familiarize public with small nominal currencies. Lana predicts, the policy may be effectively implemented in 2025. (Muhammad Farid/Translator).