Rupiah Redenomination is Futile, Says Economic Observer
Bank Indonesia (BI) has stated that the current economic condition provides the right moment to conduct rupiah redenomination.

However, Hasan Zein Mahmud, a lecturer at Kwik Kian Gie School of Business, believes that redenomination is a futile act because it does far more harm than good.

He asserted that the key in strengthening the rupiah is only one, which is the improvement of economic fundamentals. This includes improving infrastructure, technological mastery, improving the quality of human resources, and wiping out the economy from leakage and inefficiency.

Hasan pointed out that currency redenomination was successful in Turkey and Romania. However, the concrete results of redenomination did not encourage meaningful economic improvements in both countries.

In fact, Zimbabwe, which strives its image through redenomination, had repeatedly failed its attempts at redenomination.

The former Director of Jakarta Stock Exchange and Jakarta Futures Exchange stated that redenomination will have minor and administrative effects such as calculation of transactions in rupiah will be simpler, the tariff list in shopping places such as malls, restaurants and hotels becomes shorter, and the presentation of financial reports can be shorter.

The list of such benefits is much smaller than the cost of printing new money, the cost of socialization and the cost of legislation, and the minor benefits will only be temporary, because the rupiah, like its destiny throughout history, will fade in the next period, he said.

In addition, according to Hasan, redenomination will push stock price count so much more complicated. Stocks priced at IDR50 in Indonesia Stock Exchange (IDX) must be written as IDR0.05. Not to mention the fraction of IDR1 price must be written as IDR0.001.

Then, all of the Companys Articles of Association must also be changed. The competitiveness of reports concerning the value of the rupiah with the previous periods reports is complicated.

This is just about presenting, the analysis will certainly be more complicated, the current business contracts that are stated in the value of the rupiah should be reviewed, and adjustments in online banking transactions will be difficult and the repairs will take time and expensive, he added.

Source: Netral English

Jul 01, 2017

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