By Andi Ronaldo Marbun, Management Consultant.
Indonesia’s Finance Ministry has revived a long-shelved project: redenominating the Rupiah by dropping several zeroes. The goal is simple—to simplify everyday accounting and make the currency more "fit for digital times."
The plan, publicly tied by Minister Purbaya Yudhi Sadewa, signals an intent to table a bill and finalize technical rules by around 2027, reviving a draft shelved since 2013. On paper, redenomination is a neutral bookkeeping exercise: a chosen conversion ratio (e.g., Rp1,000 → Rp1) leaves real wages, savings, and GDP unchanged. Yet past cases and economic theory caution that rounding, menu costs, and expectation formation can create short-run price volatility if the transition is poorly designed.
The core question remains: Will Indonesia execute the conversion with surgical precision, leveraging our growing digital payments backbone to neutralize rounding risks? Or will ambiguity in rounding and weak enforcement let micro-rounding quietly erode purchasing power?
Redenomination Is Neutral in Theory, but Risky in Practice
Conceptually, redenomination is neutral: it rescales nominal units without changing real economic magnitudes. If authorities apply a consistent conversion ratio to all cash, deposits, wages, prices, and government accounts, the real money stock and interest rate structure remain static. This is the textbook view (Fisher-style neutrality) and the starting point for policymakers. The operation itself need not be inflationary, provided fiscal and monetary fundamentals are stable.
Neutrality simplifies the economy’s legal and accounting architecture, reducing the administrative burden of handling large nominal numbers in contracts, accounting systems, and tax computations. But theory relies on frictionless implementation; in the real world, friction matters.
In practice, redenomination frequently triggers short-term price adjustments through micro-channels. Cross-country evidence shows mixed outcomes: some redenominations produced negligible long-term inflationary effects, while others recorded transient upticks attributable to re-pricing and rounding. Case studies and IMF/academic reviews note two recurring micro-channels: mechanical rounding, that occurs when legacy price tags or small cash transactions cannot express fractional new units, and expectational indexing, when firms or workers may use the redenomination as an occasion to reset nominal prices or wages.
Historical examples underline the risk. Ghana’s conversion in 2007 documented short-run price behavior that required monitoring, while econometric studies on Turkey’s 2005 conversion show small, detectable structural breaks that coincided with the process. These readings confirm that implementation design—rounding rules, transition timing, and communications—determines whether neutral arithmetic remains neutral in practice.
Indonesia’s current macro backdrop both eases and complicates the task. Low inflation (2.86 percent year-on-year in October 2025) reduces the macro incentive to use redenomination as a pretext for price increases and gives authorities a favorable window for conversion.
However, a large informal, cash-heavy segment still exists, particularly in low-value transactions like food stalls, local transport, and informal retail. In this segment, small rounding actions can accumulate across millions of transactions. The political economy is thus asymmetric: the arithmetic neutrality of redenomination is intact only if legal clarity, enforcement capacity, and outreach reach these micro markets. The conversion is therefore as much a governance exercise as a technical one: legislate the rounding rules, resource enforcement, and anchor expectations publicly.
The Digital Payments Revolution Changes the Calculus
Crucially, Indonesia’s payments landscape has changed dramatically. Bank Indonesia reported 3.79 billion digital payment transactions in April 2025 (up 31.5 percent y-o-y), and QRIS volumes rose 154.86 percent year-on-year that month. Retail BI-FAST volume reached hundreds of millions of transactions.
These figures are not marginal. They mean a sizable share of retail activity is captured, displayed, and settled through electronic ledgers that can carry full decimal precision. Practically, this digital capacity allows dual-display during a transition (old and new units), algorithmic conversion of stored prices, and the elimination of manual "always-up" rounding at many points of sale.
The digital infrastructure, therefore, converts what was once a major channel of risk (cash rounding) into a policy instrument for smoothing the conversion. Technology, however, is an enabler—not a substitute—for strict rules and enforcement.
In addition, a mandate is needed to enforce dual-display pricing for at least 12 months and requires payment providers and Point-of-Sale (POS) vendors to implement standardized rounding to the nearest subunit, with tie-breakers favoring consumers. Legal regulations must specify the conversion formula and default rounding to eliminate ambiguity (for example, round to the nearest 0.5 new units; ties round down for consumers). Because major merchants and platforms use standardized POS/e-wallet software, a central, coordinated software update can harmonize conversion logic quickly across large retail chains and digital providers.
A targeted transitional fund is urgently needed to subsidize POS upgrades, QR code reprints, and training for micro and small vendors in underbanked regions. This modest investment will prevent financial exclusion and opportunistic pricing.
Finally, regulators must use the digital footprint provided by QRIS and BI-FAST logs for near-real-time supervision and public anchoring. They should build dashboards to immediately detect anomalous jumps in average transaction values or category-level prices post-conversion. Even a small, sustained rise in prices for small-ticket categories should trigger rapid inquiry.
Furthermore, regulators must publish clear conversion tables, worked examples for typical spending baskets (like transport and utilities), and a clear penalty schedule for deliberate mispricing. This combination of monitoring, publishing, and punishment—transparency plus enforcement—will successfully convert the digital payments advantage into consumer protection, compress inflationary expectations, and keep the redenomination a purely technical fix rather than a redistributive event.
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