Exchange Rate Policy and Reserve Management in Indonesia in the Context of East Asian Monetary Regionalism

Reza Siregar and Ramkishen Rajan

No 2004-03, Centre for International Economic Studies Working Papers from University of Adelaide, Centre for International Economic Studies

Abstract: The first part of this paper examines the behaviour of rupiah over the last eight years (1995 - 2003) to ascertain whether in fact there is specific evidence of a return to de facto US dollar peg in Indonesia. While we fail to find strong evidence to suggest Indonesia has reverted to the extent of dollar pegging that was undertaken pre-crisis, there are indications that the fluctuations of the US dollar have increasingly influenced the movements of rupiah, especially since 2000. Given the apparent gradual tendency towards a “hardening” of the exchange rate, there is consequently an increasing need to maintain a sizeable level of international reserves to support the peg. The next question that arises naturally from this is whether there is any way in which the benefits from holding reserves may be obtained without the need for Indonesia to continue to accumulate them. This is where a regional reserve pooling arrangement becomes relevant. But how might one judge the potential size of benefits of reserve pooling? This is the focus of the second part of the paper.

Keywords: Exchange Rate; Indonesia Rupiah; Reserves; US dollar; Volatility. (search for similar items in EconPapers)
JEL-codes: F30 F32 F41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2004-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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