T

he draft law on the redenomination of the rupiah, which will drop three zeroes from the Indonesian currency, will be submitted to the House of Representatives for approval next year.

Finance Ministry secretary-general Kiagus Badaruddin said in Jakarta on Tuesday that the draft of the rupiah redenomination law was now being finalized. “We are proposing the bill be included as one of the priority bills in the 2013 national legislation program [prolegnas],” Kiagus told reporters on Tuesday.

The plan to redenominate the rupiah was first proposed by Indonesia’s central bank, Bank Indonesia, in 2010.

Bank Indonesia governor Darmin Nasution said at the time that redenomination was part of the government’s efforts to comply with regional economic reforms to coincide with the establishment of the ASEAN Economic Community (AEC) in 2015.

Meanwhile, Finance Minister Agus Martowardojo said public hearings should be held nationwide to ensure that the redenomination of the currency would not create misunderstandings.

“We need to hold public discussions to introduce this policy because most people still think that the redenomination will cause reductions in the exchange value of the rupiah. This policy will only simplify the rupiah in relation to foreign currencies and it will not diminish the currency’s economic value,” Agus said.

In the 1960s, due to hyperinflation, the government implemented a currency policy known as sanering, which not only cut the nominal value but also the exchange (economic) value of the currency.

Unlike sanering, the plan to redenominate the rupiah will only reduce its nominal value and leave the exchange value unaffected. At present, the exchange value of rupiah against the US dollar is Rp 9,609. So, if the government’s plan proceeds, one US dollar (based on current exchange rates) would be equal to Rp 9.60.

The Finance Ministry’s fiscal policy agency interim head, Bambang Brodjonegoro, said that the transition period for the implementation of the redenomination policy would take at least three years to avoid confusion.

“For some time, two types of currencies will exist, the old one and the new one. What we need is for the public to understand that both currencies will have the same economic value,” Bambang said.

Based on Bank Indonesia’s initial plan, the redenomination policy is separated into four stages; namely preparation, dual label procedures, the removal of old currency and finalization to ensure that none of the old currency remains in the financial system. The program is set to span from 2011 to 2022.

Institute for Development of Economic and Finance (INDEF) economist Ahmad Erani Yustika said that he believed that there was an urgency to redenominate the rupiah so that the currency’s real economic value compared to other foreign currencies could be better represented.

“Indonesia’s economic capability compared to that of Malaysia and Thailand is very similar, but there is a large gap of economic value between the rupiah and the currencies of those countries,” Ahmad said.