Historical Sketch

In the early 16th century, Portuguese traders arrived in the Indonesian archipelago, soon followed by the Dutch. In 1602, the United East India Company (VOC) was founded and dominated the European spice trade for the next two centuries. In 1800, the VOC defaulted, and the Dutch government took over its possessions. Military campaigns extended the size of the colony in the 19th and 20th centuries, the last British possession, Bencoolen (now Benkulu) on Sumatra Island, was obtained in exchange for a Malay territory in 1825. During the Pacific War, Japan conquered Netherlands India in March 1942 and held it until the final defeat in August 1945. Immediately afterwards, Indonesia declared independence, which triggered a four and a half years' war of liberation against the Dutch who tried to re-establish colonial rule. In December 1949, Indonesia finally attained independence except for Western New Guinea which remained under Dutch sovereignty until 1962.

Monetary History Overview

The United East India Company (VOC) did not establish a separate monetary order for its possessions. In 1743, it had obtained the coinage right from the local ruler of Java and began issuing coins in denominations Rupee (silver) and Mohur (gold). A coinage law was passed in October 1765. The colonial administration which had taken over from the defaulted VOC in 1800 switched to the Dutch accounting two years lated. The metropolitan coinage remained scarce, however, and older local coins, as well as Spanish and Portuguese trade coins were dominating the payment transactions. In 1826, the Bank of Java began operations and issued paper money. The Netherlands Indies Guilder as at par with the metropolitan currency, its convertibility was, however, limited. In 1942, Japan occupied the islands and expelled the Dutch. The military administration introduced the Japanese Military Yen in March 1942, like it was the case for all the conquered territories. From 1943 onwards, all Japanese possessions were integrated into the economic area of the so-called "Southeast Asian Sphere of Co-prosperity". The Guilder was exchanged at par, which corresponded to a devaluation by about 56%. Initially the Military Yen was called "Guilder" but 1944, the denomination of the occupation notes was changed into "Roepiah" to remove any reference to the European colonizer. After the Japanese defeat in September 1945, the Dutch tried to restore the colonial rule but could not regain authority against the independence movement. During the subsequent war of independence, two parallel currencies circulated in the different areas. The Dutch administration restored the Netherlands Indies Guilder in the territories under its control. The occupation currency was withdrawn and exchanged into so-called "NICA notes" (for Netherlands Indies Civil Administration) until the Bank of Java could replace them by regular banknotes in 1947. In the territories under control of the independence movement, the Japanes occupation money was also confiscated and exchanged into the so-called "ORI notes" (for "Money of the Republic of Indonesia" in Indonesian) of the 1st Indonesian Rupiah. The pre-war notes of the Bank of Java were also accepted in the liberated territories, not so the NICA currency. The war expenditure caused an excessive issuance of the ORI currency so that its value depreciated strongly. In 1949, the independence movement prevailed, and Indonesia attained independence. In the following year, a currency reform was carried out. The 2nd Indonesian Rupiah was introduced at par with the Guilder, and both rivalling wartime currencies were withdrawn and demonetized. The Bank of Java remained acting central bank until it got nationalized and transformed into the "Bank of Indonesia" in July 1953. The currency exchange was limited for both the colonial and the ORI money, amounts exceeding a threshold were confiscated and transformed into state loans. Another confiscation of cash holdings was carried out in 1959. The Rupiah lost more than 90% until the end of the 1950s, then another 90% until the mid-1960s as the post-war economy could not recover from the devastations. In December 1965, a currency reform was carried out. Three zeros were cut, and the 3rd Indonesian Rupiah became the new unit. A third confiscation of cash holdings was done, this time in the form of a 10% "exchange tax". The Rupiah was pegged to the US Dollar at an artificial value and therefore inconvertible. In April 1970, the exchange policy was changed, and the Rupiah got devalued by 98% in two steps. The floating of the exchange rate in 1978 led to a rapid depreciation until the mid-1980. The following period of currency stability was ended by the South East Asian currency crisis of 1997 which destroyed 80% of the Rupiah's value. During the 2000s, the exchange rate remained more or less stable until in the early 2010s, another slow decline has set in.

Indonesia joined the International Monetary Fund (IMF) on 15.04.1954. It withdrew on 17.07.1965 and rejoined on 21.02.1967.

The Riau-Islands had been part of the Netherlands Indies since 1824, however, due the proximity to Singapore the currency of the Straits Settlements (later Malaya) remained in place during the colonial period. After independence, the Indonesian government tolerated the currency situation for another decade, as confirmed in an ordinance of 1952. In mid-October 1963, a presidential decree initiated the currency change. In order to ease the transition, the Malayan and British Borneo Dollar got replaced by the Riau Rupiah which remained pegged at par to the Dollar while the value against the Indonesian Rupiah was adjusted accordingly. In July 1964, regular Indonesian money got issued, and the Riau interim currency was withdrawn until end September 1964, after less than one year of existence.

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