Redenomination RUPEES AND ECONOMIC STABILITY
I. INTRODUCTION
Economic growth is a macroeconomic indicator that describes the growth of goods and services in a given area in a given time. While the economic stability of a country so important that policy-makers is the main purpose in directing various fiscal and monetary instruments.
Economic stability is a prerequisite for the achievement of improved welfare guarantees and certainty in investing in a country. Thus the stability of economic growth can increase economic activity in the form of trade in goods / services and financial transactions. This must be balanced with the availability of the currency as a medium of exchange payment for goods and services in sufficient quantities. The existence of money also indicate a person's wealth and sovereignty of a country. Almost every country has its own currency whose value is the exchange rate against the currencies of other countries vary. The following exchange rates presented several countries in Southeast Asia:
Source: www.bloomberg.com, the exchange rate on December 18, 2012
Indonesia's economic growth in the last five years the range 5-6 per cent classified as stable. Indonesia's economy is quite strong even in the face of the global financial crisis in 2009. These charts are presented Indonesia's economic growth in the movement:
Figure: 1.1 Year 2008-2012 Economic Growth
Note: *) data until semester 1
Sources: www.bi.go.id
The development of the Indonesian economy that runs both the velocity of money will increase with the value increasing. This increase would have an impact on the recording of the more digits in each transaction. The number of digits has been difficult for some parties in their financial records. Therefore they want simplification digits. As an illustration of the list price of food is included in the hotel restaurant menu or in fact written by eliminating the number 3 (three) digits. The same was done in the company's financial statements which are often found elimination of 3 (three) to 6 (six) digits.
So also in our budget that is usually written in a trillion (or eliminate the last 12 digits). For example, our total revenues in the 2012 budget for Rp.1.311, 4 trillion and total expenditure amounted Rp.1.435, 4 trillion (www.fiskal.depkeu.go.id). One reason for this may be due to eliminating digit computer skills (Excel), which is currently only able to count to 15 (fifteen) digits. While total revenue or spending our country has reached 16 (sixteen) digit.
This situation is a rolling discourse rupiah redenomination. Discourse redenomination has been rolled out by Bank Indonesia since 2010. Rupiah redenomination expected to minimize inefficiencies in the economy, making use of dollars to become more comfortable with the recording of digits that is not too much, and reduce technical barriers in non-cash payment transactions.
II. Redenomination AND SANERING
The public often assumes the definition of "redenomination" equals "sanering". Though the two terms are different. Difference between the two can be seen from all sides:
Sources: http://www.redenominasirupiah.com
The difference in the two policies were clearly visible. The emphasis of the differences between them is the value of the currency and its purchasing power, which the redenomination policy did not change the value of the currency and power belinya.Sementara sanering policy reduces the value of the currency against the purchasing power of goods and services.
In the course of history, the Government of Indonesia was never done sanering policy on March 19, 1950 (known as the "Scissors Syafrudin"), August 25, 1959 and December 13, 1965. The condition of the national economy at the time was very bad, reflected in gross domestic product (GDP) is very low, very high inflation and investment dropped sharply. One mechanism sanering policy which came into force on August 25, 1959 are:
1. Decline in the value of paper money of Rp 500 and Rp 1,000 to Rp 50 and Rp 100.
2. Partial freeze on bank deposits (demand deposits and time deposits) amounted to 90% of total deposits over USD 25,000, with the stipulation that the deposits that were frozen will be replaced by the long-term savings (Regulation 3 of 1959 dated August 24, 1959).
Sanering policy gives some impact in the field of monetary policy, such as reducing the money supply, increasing government benefits are then used to reduce the loss of state coffers, and reduce the liquidity of banks. However, the reduced liquidity makes bank lending to the corporate production, distribution and export-import is reduced, so the implications for price increases and cost of living. Thus sanering policy in 1959 was deemed a failure because it worsened the state of the economy, namely the occurrence of hyper-inflation.
Unlike sanering, redenomination policy can also enhance the dignity of the nation with a digit sum of money without reducing the value of the currency. Currently in Southeast Asia only Indonesia and Vietnam who have a fractional currency up to 5 digits. With such redenomination eliminating three zeros (3 digits), then the new value of the rupiah exchange rate against the currencies of other countries will experience a nominal adjustment, although its purchasing power has not changed. For example, the new exchange rate of the rupiah against the U.S. $ will be a Rp.9, 69 / U.S. $ (current Rp.9699/US $) and the dollar became Rp.3, 17/Ringgit (currently Rp.3174/Ringgit) .
III. STORY OF SUCCESS AND FAILURE Redenomination
Turkey is one of the countries that have implemented the currency redenomination. In addition to Turkey, countries that successfully meredenominasi currency is Romanian, Polish, and Ukrainian. Meredenominasi Turkish Lira currency gradually over the 7 years that began in 2005. After the redenomination, all the money the old Turkish (code TL) is converted into a new Lira (YTL code, where Y means "Jenny" or later). The conversion rate is 1 YTL for 1,000,000 TL, or removing six zeros (6 digits).
Turkey has gradually meredenominasi currency with respect to economic stability in the country. In the early stages, TL and YTL currency circulated simultaneously for a year. Then the old currency withdrawn gradually replaced by YTL. In the next phase, known as "Jenny" in the new money is removed so that YTL currency value back into TL with redenomination. During the redenomination, the state of the economy is maintained. Inflation in Turkey in the year 2005 to the year 2009 also remained stable the range 8-9%.
Meanwhile, countries such as Russia, Argentina, Zimbabwe, North Korea and Brazil listed as countries that failed the redenomination, although Brazil and then succeeded in doing redenomination in 1994. These countries impose redenomination at the wrong time which economic conditions are unstable and have a high rate of inflation. In Russia, redenomination is even considered as an indirect instrument of government to rob the wealth of the people. North Korea in late 2009 did redenomination 100 won to 1 won. However, when people want to replace the old money won to the new money, new money stock is not available.
Brazil also had experienced failure of the redenomination in 1986-1989. Brazil has simplified its currency from cruzeiro be Cruzado. However, the exchange rate of its currency instead depreciated significantly against the USD to reach thousands Cruzado for each USD. This failure is due to the Brazilian government is incapable of managing inflation at that time still reached 500% per year. Low levels of trust in the government also became the base of the default of redenomination in 1986 considering the conflict-ridden country still political and governmental instability that erodes certainty. Brazil finally succeeded in applying redenomination in 1994. A successful combination of reducing inflation and increasing influx of foreign capital reserves is an important factor in the success of redenomination Brazil.
IV. POLICY REVIEW Redenomination RUPIAH
Learning from the success of Turkey in doing redenomination currency redenomination there are several conditions that can be done. According to Bank Indonesia requirements needed are:
1. Macroeconomic stability
Macroeconomic stability for the last 5 years is quite good. Macroeconomic conditions of a country can be seen from several macroeconomic indicators such as inflation and currency exchange rates.
a. Inflation in economics is an event in which an increase in the prices of goods in general and continuously in a period / continuous associated with the market mechanism. This is related to the law of demand and supply of a particular good or service. While if the opposite happens, the condition is called deflation.
Components of inflation in the country include: volatile foods (volatile price components), administered price (the price component of the government regulated), core inflation (core components) and imported inflation (inflation due to rising prices of imported goods). Stable inflation reflected in the domestic price stability and good handling on all four components of inflation.
Indonesia's inflation rate over the last five years is likely to have a downward trend. Here's inflation Indonesia from 2008 until the month of November 2012:
Figure: 1.2 Movement Inflation Rate 2008-2012 (year to year, yoy)
Sources: www.bi.go.id
In 2012, Indonesia's inflation is stable in the range of 3-4 percent. The inflation rate is still within the target set by the Bank of Indonesia (4.5% ± 1%). Thus, Indonesia's inflation rate is still in the safe and supportive economic stability.
b. Stable rupiah exchange rate illustrates the strength of the domestic economy in the face of global economic pressures. Its stability reflects the strength of the monetary authorities to control the value of the currency and proves the increasing competitiveness of the domestic economy in the eyes of the world. In the last 3 years the movement of dollar remained stable in the range of U.S. $ 8000-9000 per USD. Although in 2009 there Rupiah depreciation to $ 10,000 per USD due to the influence of the global crisis. Here's the exchange rate movements against the U.S. dollar:
2. Full support from all levels of society including the government, parliament, the relevant authorities, and businesses. This is important in the success of redenomination.
3. The availability of a strong legal basis governing the redenomination and other support mechanisms to ensure the stability of prices and availability of goods.
4. Socialization to the public and intensive education to prevent price increases in excess due to the actions of economic agents which utilize an oligopolistic market structure (speculators) for a number of household basic needs. Socialization is also needed, so people do not think of redenomination as sanering. Socialization is also important to address the panic in the community which in turn led to inflation.
5. The timing (timing) and the order of execution (sequencing) is appropriate.
Redenomination done if all the necessary prerequisites for the success of the program have been met redenomination. The timing is not exactly proven to be a source of failure redenomination in several countries such as Brazil, Russia, North Korea, and Zimbabwe. They do redenomination in the wrong time where the economy is not yet well established in maintaining economic stability and public confidence. In addition, the implementation can not be implemented at once redenomination at a time, but require a period of transition / phase, which began with the imposition of two types of currencies and the inclusion of the two prices in two transactions (the old currency and the currency a while), followed by the withdrawal of currency old and enforcement of currency while, until the withdrawal of temporary currency and entry entirely new currency.
V. EFFECTS Redenomination
Determination redenomination will certainly affect many dimensions, whether economic, political or social. These effects can not be separated from each other because they are interrelated.
On the monetary side, redenomination could trigger inflation in the event that the psychological effects of panic stricken and moral hazard behavior that utilizes asymmetric information for speculation storing goods and raise prices. This happens if no thorough socialization. Panic society will encourage people not to hold the Euro and prefer to spend their money into assets. Thus, it will apply the law of supply-demand led to rising prices of those assets. Besides panic can encourage people to prefer holding foreign currency more reliable. This situation would make the value of the rupiah depreciated. Which means that the Dollar has depreciated rupiah against foreign currencies into lower and indicate the competitiveness of the domestic foreign decreased compared. Inflation also occur due to rounding up if there is no small change for the new currency.
Thus the application of redenomination should be followed by the emergence of high vigilance against hyper-inflation. Socialization needs intensified and market operations should be encouraged to prevent speculators who exploit the people panic.
However, long-term redenomination very useful in raising the dignity of the Republic of Indonesia and the Rupiah. In addition there is a positive side when redenomination is applied as follows:
1. The efficiency of the payment system will be reached where the price of goods listed becomes more simple, the process of recording, storing, managing, and reporting of data in financial reports / statistics became shorter, faster and can be presented in the full amount.
2. In information technology, redenomination will reduce the software and hardware adjustments accommodate the growing digit numbers. Currently, the ability of computers can only accommodate 15-digit number. Though Indonesia has reached the value of state budget 16 digits.
3. Redenomination also reduce barriers and technical barriers in the form of the possibility of human error in the posting process or other statistical activities.
4. Perception or public trust higher against dollar money because prices change on a narrow range
5. Reducing the risk of currency substitution which further supports a more stable dollar value.
6. Economic equality with the era of the ASEAN Economic Community in 2015
VI. CONCLUSION
Redenomination of the study can be concluded the following:
1. Redenomination not the same as sanering. Redenomination is a simplification of currency without reducing the value of the currency, while sanering is cutting the value of the currency.
2. Redenomination is needed in order to make effective and efficient economic activities in Indonesia relating to the transaction that requires the recording of a simpler digits.
3. Redenomination to do with records of domestic economic stability maintained and inflation rates tend to be low and stable, and the timing and sequence of proper execution.
4. Socializing on the implementation of redenomination is needed to kepelosok-remote areas to prevent panic and psychological pressure on people who can threaten the hyper-inflation.
5. Redenomination success is also determined by the presence of surveillance systems prices and availability of goods are effective to prevent speculative behavior that intentionally seek profit by withholding supply of goods and raise the price of goods.
