For the love of money

For the love of money

A group of individuals, led by businesswoman Siti Hardiyanti
Rukmana, has launched the "Love Rupiah" campaign, aimed at
shoring up people's confidence in the national currency by
selling their U.S. dollar holdings in exchange for rupiah.

Confidence in the rupiah has ebbed in recent months. More and
more people were opting to hold dollars and other foreign
currencies and gold. Anything but the rupiah, whose value has
plunged.

The point that Hardiyanti, and others in the campaign try to
make is that if everybody trusts, supports and even loves the
national currency, the economic crisis could be solved, or at
least would not be as bad as it has been.

The rupiah has taken a severe beating in recent months, with
its value plunging from Rp 2,400 to the dollar in June, to as low
as Rp 10,000 at one point last week. Yesterday, it hovered at
around Rp 8,000. The rupiah's free fall is wreaking havoc on the
economy and on the lives of many people. Companies going
bankrupt, people being laid off, and rising prices are some of
the ugly impacts of the crisis.

Like the saying "Love me, love my dog", the slogan of the
campaign is that if you love your country, you should love the
rupiah. But love for something means that you develop a
passionate feeling for it. It's not something that comes out of
the blue. There must be other reasons for loving the rupiah
besides nationalistic sentiment.

Most basic economic textbooks give three main functions of
money: as a medium of exchange, a unit of account and a store of
value. These are functions that make money, in this case the
rupiah, acceptable as legal tender by people in this country.

These functions are by no means exclusive to rupiah. There are
others that carry one or two of the functions, but not all three.
And at times of crisis, they often become alternatives to rupiah.

The American dollar is not a widely accepted medium of
exchange in Indonesia, but it is both a more stable unit of
account and a store of value. Gold also carries these two
functions more effectively than the rupiah. When the going got
rough for the rupiah, more and more people turned away from the
currency, and sought alternatives. Hoarding staple foods was even
seen as an attractive store of value last week.

But let's be clear about one thing: the rush to buy the
dollar, gold and foodstuffs was conducted by a small group of
people. Their number may have grown, but they were still a
minority. The majority of the people have continued to trust the
rupiah, although it's not necessarily love.

They have been willing to give the benefit of the doubt, trust
that the crisis was temporary, and hope things will improve. For
the majority, the rupiah has continued to perform its three
functions, admittedly not very effectively as a store of value
given the sharp price increases.

We cannot fault the minority who bought the dollars. They have
their reasons, some very compelling, for doing so: to pay their
dollar-denominated debts, to finance their children's education
abroad, or simply to protect their savings. Even the government
is jealously holding on to its $20 billion or so in forex
reserves with the justification that it is needed to finance
Indonesia's import needs for the next five months.

Given that everybody has their reason to buy and keep dollars,
the "Love Rupiah" campaign then will likely have a limited
impact. The campaign can only be a token gesture in support of
the currency and the government. And public support is something
the government needs today.

Ultimately, however, the government must still regain the
people's confidence in the currency by restoring the functions
that money is supposed to carry, more effectively than at
present. A campaign based on nationalistic or patriotic
sentiments is well and good, but the monetary authorities must
still give the people better reasons to love the national
currency.