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.