The monetary crisis that hit Southeast Asian Countries from July 1996 affected the development of the Indonesian economy. Apparently, the Indonesian economy was not able to face the global crisis engulfing the world. Indonesia’s economic crisis began with the weakening of the rupiah against the US dollar. On August 1st, 1997, the rupiah fell from 2,575 to 2,603 per dollar. In December 1997, the value of the rupiah against the US dollar fell to 5,000 per dollar. Soon, in March 1998, the rupiah continued to weaken and reached the lowest point, 16,000 per dollar. Adam (2000) argues that it seems Indonesia’s economic crisis could not be separated from a variety of conditions, namely (1) Indonesia foreign debt was very large. Although, the debt is not fully national debt, which means some parts are private debt, but it had a great effect on worsening the economic crisis . (2) Industrialization; the New Order government wanted to make Indonesia an industrialized country. The desire was not in accordance with real conditions of Indonesian society, which was predominantly agrarian with a very low level of education. (3) The centralized administration of the New Order government meant that all policies were determined from Jakarta. Therefore, the crucial role of local governments only served as an extension of the central government.

However, by the year of 2009 Indonesian economic development had become more stable than before. In fact, when most countries in the world experiencing negative economic growth, Indonesia’s GDP growth rate reached 4.5 percent (Indonesian Central Statistic Agency, 2010). This put Indonesia as one of the three best performing countries in economic terms the following year, in addition to China and India. Based on second Quarterly Indonesian Economic Growth Report in 2010, Indonesia’s high economic growth, supported by increased of exports, investment recovery, and maintained the level of public consumption (Indonesia Central Statistic Agency, 2010).

Based on the largest Indonesian online newspaper Kompas.com, in August 2010, due to economic growth and stability, the Central Bank of Indonesia planned to perform a redenomination of rupiah . Redenomination could be conducted in a situation in which macro-economic conditions, economic growth and inflation were stable and under control. Redenomination, in this case, means reducing digits (zeros) without reducing the value of those currencies. For example, the 1,000-rupiah bill would become 1 new rupiah in order to simplify the denomination (floating) currency into smaller fragments. With this simplification simultaneously carried out also on the prices of goods, this process would not change people’s purchasing power (Ioana, 2005).

Based on E. Borensztein and J.D. Gregorio (1999) research paper I can explained that in redenomination, the value of money for goods has not changed; only the way of writing the reference and floating currencies are changed and adjusted. This is different from devaluation, where the value of money for goods became smaller, because it cuts the value of the goods . Devaluation done in the event of very high inflation and macroeconomic conditions are not healthy. Some examples of redenomination: for one liter of petrol price currently at Rp. 4,500 per liter, if redenomination cut up to three digits (three zeros), then that must be paid about (new) Rp. 4.5 for 1 liter of petrol due to the price of one liter of petrol is also expressed the same in fractional units. While sanering, if there is sanering per thousand rupiah, then by Rp. 4.5 can only purchase 1/1000 or 0.001 liters of gasoline .

The principal aim of currency redenomination is to simplify fractions and to make it more efficient and comfortable in transactions (Oluba, 2008). Besides that, currency redenomination could make economic disparity within regional countries looks more equal and could overcome criticisms like that from Fox News (2008) , which claimed that Indonesia’s currency was among the world’s worst ten.

Therefore, this paper will argue that Indonesia should redenominate its currency because of its positive impact on society and its economic influences within the region.

Economic Impact of Redenomination