An Indonesian Currency Board?
Indonesia recently considered establishing a currency board, which would exchange rupiah notes for U.S. dollars on demand, with no restrictions. The country would insure this offer by fully backing the rupiah monetary base with dollars and by fixing the exchange rate as a matter of public law. An irrevocable dollar peg with full rupiah convertibility would automatically link Indonesia’s money stock to that of the U.S. By precluding Indonesia from engaging in discretionary monetary policy, this arrangement would enhance the credibility of the rupiah’s purchasing power.
Suggested citation: “An Indonesian Currency Board?” Federal Reserve Bank of Cleveland, Economic Trends, no. 98-03, pp. 19, 03.01.1998.