Pros and Cons of Rupiah Redenomination and Its Impact on National Economy

YOGYAKARTA - The advantages and disadvantages of rupiah redenomination have become a hot topic of discussion in national economic policy discourse. The Ministry of Finance (Kemenkeu) has designated redenomination as part of the government's strategic agenda through the Draft Law on Changes to the Rupiah Price, which is targeted for completion in 2027.

This step is considered crucial for strengthening the rupiah's position internationally while simplifying the national financial system. The following will explain the advantages and disadvantages of the rupiah redenomination policy in more detail.

Pros and Cons of Rupiah Redenomination

Simply put, redenomination simplifies the value of a currency by removing several zeros from the back without changing its real value. For example, a nominal value of IDR 1,000 will become IDR 1, but its purchasing power remains the same.

The main goal of this policy is not to depreciate or depreciate money, but rather to simplify the financial system to make it more efficient and easier for the public to understand.

The Executive Director of the Segara Research Institute, Piter Abdullah, said that one of the main benefits of rupiah redenomination is to improve the dignity and image of the rupiah in the eyes of the world. He explained that Indonesia's economy is currently among the top 20 in the world, but because of its many zeros, its exchange rate tends to be low.

"Our currency doesn't reflect our position in the global economy. If we go to a money changer, our currency doesn't even appear there. Because its value is so small," he explained, as quoted by Kumparan.

By removing three zeros, the rupiah's position can be equal to other countries' currencies and foster public pride in the national currency. When people feel proud and confident in the value of their own currency, economic stability increases due to higher demand for the rupiah.

Furthermore, Piter said, redenomination also simplifies financial recording, especially in the digital age. Many modern financial systems struggle to process long numbers like billions or trillions.

"We're in the digital age, and if we have really long numbers like that, it's difficult. Well, that's a real drag in a digital system," he said.

With shorter denominations, administration and accounting systems will become more efficient and reduce the risk of recording errors.

INDEF Executive Director Tauhid Ahmad also believes that redenomination will have a positive impact on strengthening the exchange rate. He cited the example of how, before the monetary crisis, the rupiah's exchange rate against the dollar was between Rp 2,400 and Rp 2,700, while now it has reached Rp 15,000.

"With the current value at Rp 15,000, if it were cut to Rp 15, this would strengthen the exchange rate because the comparison would be smaller, thus strengthening the exchange rate," he explained.

However, this policy is not without risks, especially during the transition period. One of the most likely impacts is short-term inflation due to adjustments in the prices of goods and services.

When prices are rounded up after redenomination, people's purchasing power may be slightly affected before eventually stabilizing.

Piter explained that this tendency to round prices can cause a temporary increase in inflation. For example, a price of Rp 13,990 after redenomination might be rounded down to Rp 14.

However, Peter emphasized that this effect is temporary because once the adjustment is complete, the inflation rate will stabilize and may even become more manageable.

"But that's just a one-time price change; it can't continue. In fact, after that, there's a possibility we'll experience more stable, stronger inflation. Because the prices are already there," Piter said.

Meanwhile, Tauhid reminded the public to be vigilant so they don't feel like they've lost the value of their assets. For example, the price of land or a car that was previously worth billions of rupiah will appear much smaller after redenomination.

Even if the real value remains unchanged, people's psychological perception of their wealth can be impacted, especially in the initial stages of the policy's implementation.

"For example, we used to buy a car, land, or gold at a very high price, but when prices were high, for example, from Rp 2 billion, it became worth several million. That's something to worry about in the first few years, and it will definitely be felt," he said.

In addition to the two issues mentioned above, inadequate public outreach can also be a serious obstacle. The government must explain widely that redenomination is not a reduction in the value of money like a sanitation program.

Without adequate public education, this policy could create confusion and concern, potentially delaying its implementation.

This explains the advantages and disadvantages of rupiah redenomination. This policy has the potential to improve the national financial system and strengthen the rupiah's position internationally. However, its success depends on economic preparedness, proper outreach, and monitoring of potential inflation.