Fellow UNDIRA friends, some time ago we were presented with a discourse regarding the redenomination of the Indonesian currency by the Minister of Finance of the Republic of Indonesia, Mr. Purbaya Yudhi Sadewa. He asserted that this decision is related to the Strategic Plan of the Ministry of Finance of the Republic of Indonesia for the 2025-2029 period.

But what exactly is Redenomination and what are its benefits for the economic wheels of the Indonesian society today? In this article, fellow UNDIRA friends, let's together understand what Redenomination is along with its benefits.

The Redenomination plan is also considered to be in accordance with the Minister of Finance Regulation (PMK) Number 70 of 2025 in order to advance the Indonesian economy. Imagine us paying with a nominal value of Rp. 50,- instead of Rp. 50,000,-; this is what is called Redenomination. Simply put, Redenomination is not just about eliminating one or two ‘zero’ digits from a monetary nominal, but also a simplification of the currency's value.

This is different from the concept of ‘sanering’ (currency devaluation) where the currency as a whole experiences a decrease without a corresponding reduction in the value of goods. For example, we have Rp. 100,-, but the value of the intended goods remains at Rp. 100,000,-. Redenomination only functions to simplify without reducing the value of the currency or the goods to be purchased.

Redenomination itself is not only a plan that Indonesia wishes to undertake; various countries such as Hungary and Turkey have also implemented Redenomination to resolve inflation problems that occurred in the 1900s. Fellow UNDIRA friends, Redenomination has several positive benefits that can boost the nation's economy:

1. Simplifying Financial Accounting Records and Boosting Rupiah Appreciation

In the process of calculating money, whether manually or automatically, a human error is bound to occur, especially when recording financial expenses and incomes. This simplification will also impact public appreciation for the Rupiah currency. Symbolically, this simplification will also create a positive image of the Rupiah in the eyes of the world, which is expected to attract investment interest and financial literacy in the long term.

2. Accelerating Calculation Time and Transaction Efficiency

The reduction of ‘zero’ digits directly impacts the speed and efficiency of daily transactions. The visualization of a more concise nominal value significantly accelerates the calculation process and data input. This simpler transaction flow is also expected to create a process that is more intuitive and accessible to all segments of society, ultimately increasing convenience in economic activity.

However, behind its potential to simplify transactions and enhance the Rupiah’s credibility, redenomination has several major challenges that must be thoroughly examined. The first challenge is the risk of opportunistic rounding, or the practice of unfair price rounding.

Although the simplification of monetary value facilitates record-keeping, Redenomination also opens a loophole for merchants to subtly increase prices. For example, when the price of a staple good of Rp 9,500 is redenominated to Rp 9.5, there is a potential for merchants to round it up to Rp 10 for transaction convenience. If this practice occurs widely, it can trigger inflation and disrupt economic stability.

Furthermore, unpreparedness in the conceptual transition or misinformation regarding Redenomination occurring among the public can also potentially worsen sustainable economic turnover. Quoted from a statement by Bank Indonesia, at least 11 years are needed for Redenomination to run well and comprehensively to boost the nation's economy.

Essentially, redenomination can be the right mechanism to improve the currency's image. However, if its implementation is not well-targeted or is marred by misinformation leading to public misunderstanding, the policy has the potential for total failure. As published in the Bulletin of Monetary Economics and Banking (Vol. 17, No. 2), redenomination will be considered a failure if a country is unable to implement it properly and instead ends up with hyperinflation after the policy is carried out.