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Rupiah plummets to seven-year low
Aditya Suharmoko , The Jakarta Post , Jakarta | Fri, 11/14/2008 11:07 AM | Headlines
The rupiah hit its weakest level since 2001 in afternoon trading Thursday as speculators panicked in response to the central bank's recent restriction on foreign exchange transactions.
It was not until the central bank stepped in that the value of the rupiah returned to 11,800 per dollar at 4:11 p.m. in Jakarta, after reaching 11,998, its lowest point since 2001, according to Bloomberg.
The value of the rupiah has tumbled 17 percent in the past month as people look for dollars on fears the world is entering a recession, with speculators exacerbating the situation by hoarding the currency.
"The slump was driven by speculators looking for dollars to cover their losses in forward contracts," said Martin Panggabean, chief economist at state-run Bank Mandiri.
A forward contract is an agreement in which parties buy or sell assets for delivery at a later specified time and date.
Martin said traders might hoard as much of the U.S. currency as they could out of fear they might not be able to collect enough for later delivery because of the recent Bank Indonesia (BI) policy to limit purchases of foreign currencies.
Under the regulation, Indonesian citizens or firms wanting to purchase more than US$100,000 in foreign currencies must provide evidence of underlying transactions, such as invoices used to import goods or pay debts.
Foreign parties can only purchase amounts above $100,000 through spot transactions.
The regulation is expected to limit speculative purchases of currencies. With the regulation in place, BI expects banks to be able to detect when customers purchase dollars for speculative purposes.
Capital control enables the government to more easily manage the flow of short-term funds, or hot money, in and out of Indonesia, according to independent currency analyst Farial Anwar.
Martin said the decline in the rupiah was proof of the effectiveness of the BI policy, as speculation would be rife for a short period before easing in the future.
He said he expected the rupiah to strengthen within a month as speculation subsided.
"Perhaps it will strengthen in less than a month, in two or three weeks," he said.
Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said the value of the rupiah had tumbled because market players were afraid they would have difficulties in purchasing dollars.
"At the moment, any regulations can be perceived negatively. Perhaps they thought the new regulation would be a capital control-like mechanism," he said.
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Mal - Perth Australia (not verified) — Fri, 11/14/2008 - 5:51pm
My “global view”
I for one, simply do NOT understand the currency fiasco.... Why governments allow this obscene trading of an average of FOUR TRILLION DOLLARS A DAY (yes trillion).
($US4,000,000,000,000.00) is beyond me, where the filthy rich, shuffle paper for staggering profits.
This trade IGNORES the effect on human beings.... Countries can and ARE destroyed by these faceless monsters.
A “one world” currency, would go a long way to stopping this obscenity. Even a group of four currency blocks, would help enormously...... IT IS DOABLE. E.G..... Euro, Aligned US dollar, an Asian currency and the Non-Aligned. Attached to a universal “PEG” e.g. gold, platinum OR WHATEVER.... THERE SIMPLY HAS TO BE A BETTER WAY!!!!!
(Please do not get bogged down in the history of the “Gold Standard” - it DID “work” after a fashion and WILL work again – what we have now is NOT better).
Money has been sucked out of traditional markets and now, a great deal of the global “liquidity” is focused on the paper shufflers within the currency market, with only one motivation – profit. (some argue – given their power – political).
Should WE find a way to curb this obscene trade where will this money go?
Some at least will return to the share market, with the USA probably being the main recipient... Banks will see a massive influx of liquidity.... It would certainly create a renewed vitality within business, where all nations can advance, grow and do what humans do. Governments should take the opportunity of regulating and making sure that “pure speculation” is at best undesirable.
Exploration, innovation, enterprise etc.. requires funding to get all nations back on track... Tying up money with those who shuffle paper, without producing anything... in a market that NEVER produces anything (currency market) is in my view obscene.....
QUOTE:Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.
SOURCE:http://en.wikipedia.org/wiki/Foreign_exchange_market
I do not want to waste energy on laying blame....... I prefer to use that energy to seek a solution.
The "players" of the currency game are generally VERY rich.. at the high end you must purchase at least 100,000 "units" (Dollars in my case) to "deal a hand"... Yet the vast majority of these very same people live in the worlds most advantaged nations... They do little to advance the "enterprise" of their fellow citizens... They simply want to increase their own wealth (and power)....
I am not against capitalism, if fact quite the opposite...
Also (Quite unrelated to the above statement) I am VERY pro democracy.... However, - there's always a "however", creating wealth for the sake of wealth - at the expense of fellow human beings, is in my book intolerable...
Changing our world and it's people is going to take courage, persistence and determination.... For the sake of our children and their children, somehow we must begin....
Do you know? The "currency game" is only played 5 days a week.... (by what agreement I don't know)... Your and my currency rarely fluctuates at the weekend....
Why? are there no "market forces" at the weekend? No wars, act's of God, bombings, earthquakes... etc.. etc.... No the "players simply take a break at the weekend - ready for another obscene assault on some unsuspecting Nation, Monday morning....
I do not want to go into the for and against, of the $US700 billion "bail out" funded by American taxpayers (For which the majority of the world benefits).... Or the "taxpayer funded" efforts of other nations, however, I feel that it is fundamentally wrong to place the full burden upon them.
The players in this obscene (1,400 + trillion dollars annually), "currency game" should, - as they produce nothing - somehow, be compelled to contribute.