About time

Bank Indonesia Zeros In on Bank Notes

Jakarta. The days when small shops give change in sweets instead of contemptible Rp 100 or Rp 200 coins will be a thing of the past — some day.

Bank Indonesia is considering lopping two or three zeros off the rupiah’s face value in a bid to make transactions more efficient and bring the currency in line with those of Indonesia’s Asean neighbors.

Incoming central bank Governor Darmin Nasution said on Tuesday that higher denominations contributed to inflation, making it easier to continually round up prices.

“In countries with small denominations, prices are practically unchanged,” he said.

BI spokesman Difi Johansyah said people often neglected small amounts in countries with high-denomination bills, and a redenomination would benefit savers.

“Consider how much small change you do not receive from retailers every day. It may be Rp 50 or Rp 25, too small for you to bother asking for it,” Difi said. “But if you accumulate it, the amount is quite significant.”

Darmin said smaller denominations would be more efficient as the country moved toward a cashless society. “It makes it less complicated for machines,” he said.

The government also wanted the rupiah to be on a par with other Asean currencies as the grouping prepared ambitious plans to establish a political and economic community by 2015, he said.

However, Darmin said the central bank was in no rush, with the study not scheduled for completion until the end of this year and the redenomination process expected to take at least 10 years.

A transitional phase would begin in 2013 at the earliest, with two currencies in circulation — the new and old rupiah — with the latter phased out by 2020.

Other countries have tried the redenomination trick, with varying success.

North Korea and Zimbabwe used it to tackle hyperinflation but failed, while Turkey and Romania, which had already brought inflation under control and were trimming zeroes to establish the value of their currencies, were successful.

Economists agreed the move would not have an inflationary impact either way for Indonesia, which just this week reported higher-than-expected annual inflation for July of 6.22 percent, just above BI’s year-end target of 4 percent to 6 percent.

“Maybe there will be a rounding-up of small amounts, for example Rp 300 becomes Rp 0.3 in value, but there’s no 0.3 change. But in practice, people already ignore small change like this,” said Anton Gunawan, an economist at Bank Danamon.

Vice President Boediono urged the public not to be alarmed. “It is only a study.”

Much time was needed to assess the potential effects of a redenomination and the government would seek public opinion.

“It is only a study and the path from a study becoming a policy is a long process,” Boediono said.

Bank Indonesia has introduced higher-denomination bills five times since 1964.

The Rp 100,000 note is now the second-highest denomination banknote after Vietnam’s 500,000 dong note, which is worth about $26, Darmin said.