What is the Currency of Indonesia?

By Joyce Chepkemoi on August 1 2017 in Economics

Assorted Indonesian rupiah banknotes.

Indonesia is an island nation in Southeast Asia made up of more than seventeen thousand islands which lie between the Pacific Ocean and the Indian Ocean. The official currency in Indonesia is the Indonesian rupiah.

History of Indonesian Currency

The first use of currency in Indonesia can be traced back to the 9th century during the Sailendra dynasty. The currency was in the form of gold and silver coins bearing the sandalwood flower image. Traders in the region also used strings of beads made by the Srivijaya Empire as a unit of exchange. In the 13th Century, Chinese merchants introduced copper coins to the Indonesian islands. The Chinese coins were designed with a hole at the center. Indonesians produced lead and tin coins inspired by the Chinese copper coins. The arrival of Europeans in the 15th century marked a new era of currency in Indonesia. The Dutchmen who colonized Indonesia introduced silver and gold coins, referred to as the gulden. In 1752, the first banknotes were issued in Indonesia. The newly issued banknotes quickly lost value because they lacked backing in coin form. When the Japanese invaded Dutch-controlled Indonesia in 1942, they brought their own supply of gulden currency. This resulted in an oversupply of money in Indonesia, and the inflation rate increased significantly. High rates of inflation continued to drag down Indonesia’s economy even after World War II.

Indonesian Rupiah

Indonesia declared Bank Negara Indonesia as its central bank on July 5, 1946. In October of that year, the bank released Indonesia’s first official currency, referred to as the rupiah. The rupiah has undergone several revaluations due to massive inflation in the country. Currently, coins are available in denominations between 100 and 1000 rupiah. The banknotes come in denominations between 1,000 and 100,000 rupiah. Financial challenges and massive debt in the country have contributed to a decreased value of the Indonesian rupiah.

Financial Troubles in Asia

A wave of financial hardship swept through Asia between 1997 and 1999. It began in Thailand, when the country failed to maintain its exchange rate to the dollar at 25 Thai baht to 1 US dollar. Thailand left its currency to trade freely after attempts to control it failed. Indonesia took measures to defend its currency by widening the exchange rate limits. This action resulted in a panic among investors and concerned citizens abandoned the rupiah in favor of foreign currencies. Subsequently, the rupiah’s value quickly went on a downward spiral. Intervention by the International Monetary Fund (IMF) led to a stabilization of the Indonesian rupiah, although only for a brief period. Corruption by government officials erased the efforts made by the International Monetary Fund, leading to further loss in value of the rupiah.

Limitations of the Indonesian Rupiah

As a result of the financial crisis of 1997 and 1998, the Indonesian currency suffered a massive loss and is yet to recover. In today’s financial markets, the rupiah's exchange rate with the dollar is estimated at 13,300 rupiah for 1 US dollar. The Indonesian rupiah is among the least valued currencies in the world, and most investors regard it as a very unstable currency.

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