McLeod on "renewing" the rupiah

monetary ▪ policy ▪

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.

» read more...