T

he government officially started its campaign to strike off three zeros from the rupiah on Wednesday, with top officials expressing their optimism that the “redenomination” would make the economy more efficient without sparking inflation.

At its current rate of around 9,700 per US dollar, the rupiah appeared to be among the world’s weakest currencies but its value did not accurately reflect the country’s strong economic fundamentals, Finance Minister Agus Martowardojo said.

“A currency that has too many digits brings complexity to calculations and economic transactions, potentially causing mistakes and ineffectiveness [during the computation process],” the minister said during the redenomination public hearing in Jakarta.

The government has included redenomination as one of the priority bills to be discussed in the House of Representatives (DPR) this year.

If the bill is passed into law, Rp 1,000 will become Rp 1 but the banknote’s purchasing power will remain the same.

A transition period is slated for 2014. This means in 2014, Indonesians will have two types of banknotes circulating in the market: the existing banknotes and those with three zeros omitted.

During the transition period, all shops and businesses will have to use dual pricing; before and after the redenomination.

The process will take between four and six years, meaning the old banknotes should be withdrawn by 2018.

It would be necessary for the public to know that the redenomination was different from the currency policy implemented in the 1960s, known as sanering, Agus said. The minister explained that, while sanering cut both the nominal value and the exchange (economic) value of the currency, redenomination would leave people’s purchasing power unaffected.

Nevertheless, the government’s plan to delete three zeros has been criticized by some parties, including Chairul Tanjung, the chairman of the President’s National Economic Committee (KEN), who argued that the redenomination was unnecessary and should not be a priority.

Delivering his keynote speech at the redenomination public hearing, Bank Indonesia (BI) Governor Darmin Nasution took time to hit back at critics.

“Those saying redenomination is not necessary, arguing that there is no price shock yet in Indonesia, are mistaken,” he said.

Darmin explained that a redenomination policy could only be successful if it was implemented at a time when a country possessed both stable inflation and strong macroeconomic fundamentals — as Indonesia has at present.

The central bank is also confident that the redenomination policy will not trigger inflationary pressure.

The money supply would stay at the same level despite the fact that there would be two types of banknotes during the transition period in 2014, a BI official said.

“If I need to print 1 million Rp 100,000 notes, then during that time I only need to print a half a million in that form, while another half will be printed in the form of Rp 100. The amount of banknotes circulating in the market, therefore, will remain unchanged,” BI Deputy Governor Ronald Waas said on Wednesday. (sat)