The Central Bank of Indonesia revives plan to redenominate the currency in the largest South Asian economy despite the danger of market turmoil, while the US accelerated pace of tightening monetary policy.
“The redenomination should take place until the economy is stable”, said the deputy governor of the central bank, Mirza Adityaswara. “Now, at this point, this can be done. The exchange rate was turbulent, but will not have much impact. The bottom line is the economy is stable”, added he.
Indonesian rupiah is the currency with the higher denominations in Asia. Therefore, the bank proposes to remove three zeros to simplify payments. Such a plan, four years ago, was frozen when the US Federal Reserve announced that it withdrew the incentives that wreaked havoc in emerging markets, including sales of rupiah.
The local financial markets were again shaken immediately after the US presidential win of Donald Trump, as the Indonesian currency was one of the hardest hit. On November 9, the Indonesian rupiah sank to two-month low. This month, the rupee appreciated by 1.3% against the US dollar.
The Indonesia economy and rupee perform well after the election of Trump. Since the government removed fuel subsidies, really there is no reason to see a jump in inflation and the currency they had in the past. According to the central bank the introduced new denominations of the currency will neither lower the purchasing power, nor will it lead to volatility and will have minimal impact on prices. For over one year the Bank keep inflation below 5%.
“Redenomination is a matter of simplification”, said Mirza Adityaswara.