Indonesia | Economics

Tuesday, June 03, 2008

McLeod on "renewing" the rupiah

Ross McLeod argues for dropping some zeros off the Rupiah:
[It] is far easier to eyeball numbers if they consist of three or four digits rather than a dozen or more (and of course many more numbers can be reported in a single table if they are rounded). For the same kinds of reasons, it is highly inconvenient to have to undertake low value transactions in very large nominal amounts.

The argument for introducing another ‘new rupiah’ is compelling. (The present rupiah was itself once new, having been introduced to replace the old one, which had become almost worthless as a result of the hyperinflation of the mid-1960s.) Quite simply, it is grossly inefficient to have to calculate and undertake transactions in the millions, when they could just as easily be done in hundreds or thousands.

I can think of only one counter argument: that the introduction of a new rupiah would be confusing and worrying to many members of the public. No doubt if the transition were not handled carefully, that would be the case. But people are not stupid. Provided high-level government officials explain the rationale for the change carefully and patiently, the general public will understand. Perhaps the most important aspect to stress is that the old currency will be exchangeable for the new at a rate of, say, 1000 for 1, for a reasonably long period of time. It would probably be sensible to introduce new cents at the same time.

I wholly agree.

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6 Comments:

  • In a case of dropping off zeros - people has a tendency to rounding up new prices (this is also happened when euro introduced in countries where the citizens got used to many digits nominal).

    Wouldn't this will trigger (unnecessary and unintended) inflation?

    By Blogger hotradero, at 6/12/2008 05:02:00 am  

  • Arya, how are you? Dropping one zero is good idea. :)

    By Blogger JennieSBev.com, at 6/12/2008 04:24:00 pm  

  • Poltak:
    Yes, but I'd suspect it would be a one-off thing and the adjustment would be swift.

    By Blogger Arya Gaduh, at 6/15/2008 07:41:00 pm  

  • Hello Aryah,

    I am a bulee living in Indonesia.
    I support that they should take some zero's from the rupia.
    With the euro they did that to.
    Living outside europe,I like my currency.

    Bye,
    Green Eye

    By Blogger Charles, at 9/03/2008 06:01:00 am  

  • i think it will cause some social unrest, this "dropping some zero on rupiah" is easier to be said then done. I totally agree with what Mr. hotradero said, and i could not imagine how will the campaign on this program got response from people? IMHO the 1998 crisis 90% made from social unrest side effect rather than from economic slowdown effect, another mass riot would be the last thing we need in current circumstances.

    By Anonymous Nugroho Adi Pratama, at 12/11/2008 06:38:00 am  

  • Nugroho:

    Turkey implemented such a policy in January 2005 via the introduction of a "new lira" where 1 new lira was worth 1 million old lira. So far, the policy hasn't caused any unrest.

    By Blogger Arya Gaduh, at 1/04/2009 03:40:00 pm  

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