Indonesian Central Bank Plans to Redenominate Rupiah in 2014

Indonesia’s central bank plans to begin redenominating the rupiah in 2014 to simplify payments in a nation that has Asia’s second-highest denominated note.

The proposal requires parliamentary approval and each unit of the new currency would equate to 1,000 of the existing rupiah, which will be phased out by the end of 2016, Perry Warjiyo, executive director for economic research and monetary policy at Bank Indonesia, told reporters in Jakarta today. The authorities will allow the use of both the new and old currencies during the three-year transition period, he said.

Indonesians currently carry 100,000 rupiah banknotes ($10.36), the highest denomination in Asia after Vietnam’s 500,000 dong notes. The nation’s banking assets amounted to 4.029 quadrillion rupiah in October, or 4,029,000,000,000,000 rupiah, central bank data show.

“This move will not disrupt payments, inflation and the economy as a whole,” Warjiyo said. “Bank Indonesia and the government will socialize the move to businesses, associations and the entire community starting next year.”

Zimbabwe redenominated its dollar three times in the past decade, a period in which Azerbaijan, Brazil, Ghana, Romania, Turkey, Turkmenistan and Venezuela also lopped zeroes off the face value of their currencies.

Rupiah Units

Consumer-price gains in Southeast Asia’s largest economy moderated to an annual rate of 4.3 percent in November, compared with 4.6 percent the previous month and last year’s high of 7 percent, central bank data show.

“When it comes to odd numbers, say 75 cents, the fear is that vendors will round it up to 1 rupiah and therefore contribute to inflation,” Anton Gunawan, chief economist at PT Bank Danamon Indonesia in Jakarta, said in an interview today. “But even now, when we discuss gross domestic product, we use millions and billions as units, and restaurant menus show prices with thousands as the unit.”

Starbucks Corp. stores in Jakarta show that the price of a Tall Cappuccino is 29, in units of 1,000 rupiah, while a Grande Caffe Latte costs 33.

Inflation reached as high as 635 percent in 1966, even after the government redenominated the currency in December 1965 from 1,000 rupiah to 1 rupiah, without revising prices, according to a report on the Museum of Bank Indonesia’s website entitled “History of Monetary Policy.” The method is called sanering, a Dutch term meaning reorganization. That means the currency’s purchasing power decreased with the redenomination, with the new 1 rupiah notes then valued at 1000th of the former ones. That followed a previous instance in 1959 when 1,000 rupiah became 100 rupiah, the report said.

“There are some parties who may view this move as similar to sanering, which is why socialization becomes very important,” Bank Danamon’s Gunawan said. “The effect is more on the practical side in terms of simplifying things.”

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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