"We have now achieved a good level of national economic development but it is not yet supported by an efficient currency. The rupiah must now be redenominated as it has become inefficient," Finance Minister Agus Marto Martowardojo said on the sidelines of the redenomination public campaign kick-off on Wednesday.
The government is planning to begin the process of redenominating the rupiah in 2014 and expects to complete the process by 2022.
However, the eight-year-long process can start next year only if the bill on the redenomination policy is passed into law by the House by the end of this year.
The draft of the rupiah currency redenomination bill has been forwarded to the House`s legislative body and is scheduled to be discussed during the January-June period this year.
A redenominated currency will help simplify transactions. The last three zeroes of the Indonesian currency will be removed, but the rupiah will not be devalued as a result. Thus, the current Rp 1,000 will actually be worth the same as the new Rp1.
Finance minister Agus Martowardojo said: "Currencies with too many digits in their denominations have the potential to create inefficiency in accounting reports and also use up a lot of memory in computer systems."
"In the non-cash payment system, such long digits can cause transaction problems. These problems usually arise when the transactions value exceeds the number of digits permitted during payments and bookings in the provided systems," he explained.
Agus said Indonesia needed to redenominate its currency because the move could raise the world`s confidence in the rupiah, make the payment system easy and would make the Indonesian currency more comparable with the currencies of advanced countries.
"With redenomination, the value of the rupiah currency would increase and be in line with global standards. After all, at present, the current economic condition of Indonesia is conducive for redenomination of the rupiah currency," he noted.
Sharing a similar opinion, Bank Indonesia (BI) governor Darmin Nasution pointed out that the Indonesian economy had managed to grow at a healthy pace amid uncertainties in the global market over the past few years.
He stated that the Indonesian economy grew by more than 6 percent annually over the past three years. During this time, the inflation rate decreased and the Indonesian currency remained relatively stable.
Darmin noted that the high economic growth would be accompanied by an increase in the volume of financial transactions and the high denomination of the rupiah currency could hamper such transactions.
"The rupiah currency is now the world`s second highest denomination after the Vietnamese dong. We feel that it is important to redenominate the rupiah and simply things for the future," the central bank governor said.
"Let me assure that the redenomination effort this time will not be the same as `sanering`," he explained.
Agus also repeatedly highlighted the importance of raising public awareness on the difference between redenomination and sanering.
The Indonesian government had implemented sanering in an effort to solve the country`s hyperinflation problem during the 1960s, when the rupiah got devalued as the zeroes were removed.
"Redenomination doesn`t mean it will alter or diminish the value of the rupiah. Therefore, people have nothing to worry about actually," said Joni Swastanto, senior BI official for Central Java and Yogyakarta, recently.
According to Darmin, the high denomination of rupiah suggests that it has a low value. The Rp100,000 note is now the second-highest denomination banknote in the region after Vietnam`s 500,000 dong note.
The third highest currency denomination in the region is that of the Lao kip (50,000), followed by Cambodian riel (100,000), Myamarese kyat (5,000), Philippine peso (1,000), Thai baht (1,000) and Malaysian ringgit (100).
Besides, the exchange value of the rupiah against the US dollar does not reflect the strong economy of Indonesia. The rupiah's value against the US dollar is too low compared with the exchange values of other currencies in the ASEAN region.
For example, the rupiah`s value against the US dollar on January 21 was Rp9,788 per US$1, while the values of Malaysian ringgit, Philippine peso, Singaporean dollar and Thai baht against the US dollar were MYR 3.05, PHP 41.92, SGD1.23 and THB30.52, respectively.
Therefore, Darmin said, the government had decided to continue with its plan to redenominate the Indonesian currency. He added that the government was also certain that implementing the plan would not lead to inflation.
"We can understand if there is an excess or a shortage of money in circulation. If there is an excess of money in circulation, we will withdraw. We have the right mechanism in place," he stated.
Darmin noted that the government had conducted a study on currency redenomination in 2007. The study focused on the experiences of other countries that had redenominated their currencies.
"Anyway, it will take six to 12 years to produce new bills," he added.(*)