What is the 'IDR (Indonesian Rupiah)'

The Indonesian Rupiah (IDR), is the national currency for the Republic of Indonesia. The name of the currency comes from the Indian Rupee, and the central bank, the Bank of Indonesia handles its circulation. One IDR subdivides into 100 sen. In everyday conversation, the money has the name Perak, meaning silver. 

BREAKING DOWN 'IDR (Indonesian Rupiah)'

The Indonesian Rupiah derives its name from its sister currency, the Indian rupee (INR). At one point, the Indonesian half of New Guinea and the Riau Islands circulated versions of the Rupiah, but by 1971, all areas use the Indonesian currency. Currently, the nation uses coins denominated between 100 and 1000 rupiahs. Inflation makes any smaller denomination of coins or banknotes worthless. 

Situated in Southeast Asia and Oceania, the Republic of Indonesia is the largest island nation in the world and the fourth largest in population. The nation is rich in natural resources including oil, natural gas, gold, and many agricultural products. Since 1512, the region has been a hub for international trade. Portugal, British, and the Netherlands all had colonial interest in the island chain. 

During World War Two, Japan occupied the island chain and ended Dutch rule. With the fall of Japan following the war, Indonesia sought independence in 1945. The first Indonesian rupiah appeared in October of 1946. The currency traded on the black market while the Netherlands attempted to re-establish control over its former colony. In 1950, the Netherlands recognized Indonesian sovereignty and the Indonesian rupiah became formally recognized by the international community as the country’s legal tender. The Indonesian rupiah replaced all former Dutch, Javanese and Japanese currencies circulating in the region. At its introduction, the currency traded at a rate of 3.8 rupiahs to 1 U.S. dollar (USD).

Setting the Exchange Rate for the Indonesian Rupiah

A government-established foreign exchange system faltered and failed. A devaluation to 11.4 rupiahs to 1 U.S. dollar alongside export tariffs on certain commodities further damaged the economy. The government continued to issue restrictions on the foreign exchange through 1954 in an attempt to maintain its preferred level of reserves. Another devaluation in 1959 triggered a period of exceptionally high inflation, reaching 635% in 1965. In response, the government devalued the currency by issuing a new rupiah at one new rupiah to 1,000 old rupiah rate. Multiple exchange rates coexisted at the time, so the government official reset of the exchange rate to 0.25 Indonesian rupiah to 1 U.S. dollar was effectively meaningless.

The rise of the authoritarian-leaning Suharto regime in the 1950s, stabilized the economy, bringing inflation back down to the low-single digits by the early 1970s. In August 1971, the government pegged the currency at 415 Indonesian rupiahs to 1 U.S. dollar. Continued issues with inflation pushed the government to abandon the peg in 1978. Between that time and 1986, the government used a dirty float policy, publishing a daily exchange rate. Economic pressure from overvaluation and an oil surplus in the 1980s caused further devaluations.

Increased pressure from an Asian financial crisis in the late 1990s caused the Indonesia central bank to allow the currency to float freely in 1997, triggering a rapid fall in its value. While it showed some signs of stability heading into the early 2000s, the global financial crisis of 2008 renewed pressure on the country’s economy, leading to a slow but steady decline since that time. Following the 2008 financial crisis, the Indonesian rupiah has generally traded between 9,500 and 14,000 rupiahs per U.S. dollar.

Both government and private sector spending help Indonesia maintain its status as the largest economy in Southeast Asia. According to 2017 World Bank data, Indonesia experiences a 5.1% annual gross domestic product (GDP) growth each year, with an inflation deflator of 4.2-percent.

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