Currently, the figures printed on Indonesian rupiah banknotes (the nominal value of the rupiah) are considerably higher than those of many other countries' currencies. The government and Bank Indonesia consider it necessary to simplify the currency through a process known as redenomination. According to the definition in the Indonesian Dictionary (KBBI), redenomination is the simplification of the nominal value of the rupiah without changing its exchange value. The government previously carried out rupiah redenomination in 1965, when the nominal value of the rupiah was simplified by removing three zeros. For example, Rp1,000 was redenominated to Rp1.
The strength or value of money is not determined by its nominal value, but rather by its ability to be exchanged for goods and services (the purchasing power of money). Rupiah redenomination does not reduce the purchasing power of the rupiah, because it only simplifies the way the nominal value of the rupiah is written. For example, the old Rp1,000 is redenominated to the new Rp1. Therefore, the new Rp1 can be used to purchase goods and services that were priced at Rp1,000 before redenomination.
In 2017, the government reintroduced its plan to redenominate the rupiah. The government even targeted January 1, 2020, as the starting date for implementing rupiah redenomination. However, this target was not realized, and discussions about rupiah redenomination have once again faded into the background. Pros and cons regarding a government policy are perfectly normal, as every policy inevitably has both positive and negative impacts. The nominal value of the rupiah is currently too high. It would be advisable for rupiah redenomination to be implemented as soon as possible. The government should not allow the rupiah to suffer the same fate as the Zimbabwean dollar, which had a high nominal value but low purchasing power. The government, Bank Indonesia, and the House of Representatives of the Republic of Indonesia (DPR RI) should sit together to discuss when rupiah redenomination should begin and how the mechanism should be implemented. This should then be followed by proper public education and socialization so that the negative impacts of rupiah redenomination can be minimized or even eliminated.
Drs. Algifari, M.Si.
