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The Case For An Indonesian Currency Board

Author

Listed:
  • Christopher L. Culp
  • Steve H. Hanke
  • Merton H. Miller

Abstract

In February 1998, after consulting one of the authors of this article, President Suharto and his Economic and Monetary Resilience Council advocated the establishment of a fixed‐rate currency board system in which the Indonesian rupiah would be backed by and convertible into U.S. dollars as a reserve currency. But the proposal, after being criticized by both the IMF and the U.S. government, was dropped. This article presents the case for currency boards in the context of Indonesia. The authors argue that the popular objections to currency boards–including those offered in the preceding article as well as those used by the IMF in the case of Indonesia—are based on a number of prevalent misconceptions. Contrary to the claims of critics, currency boards can be set up even in countries lacking foreign currency reserves; they can be designed to insulate their workings from political pressure; and, through the creation of a network of international branch banks and other market mechanisms, they can function without a “political” lender of last resort.

Suggested Citation

  • Christopher L. Culp & Steve H. Hanke & Merton H. Miller, 1999. "The Case For An Indonesian Currency Board," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(4), pages 57-65, January.
    • Handle: RePEc:bla:jacrfn:v:11:y:1999:i:4:p:57-65
    DOI: 10.1111/j.1745-6622.1999.tb00514.x
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    Cited by:

    1. Levy Yeyati, Eduardo & Sturzenegger, Federico, 2010. "Monetary and Exchange Rate Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4215-4281, Elsevier.
    2. Steve Hanke, 2002. "On dollarization and currency boards: Error and deception," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(4), pages 203-222.
    3. Jean-François Ponsot, 2002. "Keynes and the “National Emission Caisse” of North Russia: 1918-1920," History of Political Economy, Duke University Press, vol. 34(1), pages 177-206, Spring.
    4. Toprak, Metin, 2001. "Yükselen Piyasalarda Finansal Kriz [Financial Crises in Emerging Markets]," MPRA Paper 9092, University Library of Munich, Germany, revised 2001.
    5. Jean-François Ponsot, 2000. "Le Currency board : les contraintes de financement et d'ajustement de la convertibilité intégrale," Working Papers hal-01527297, HAL.
    6. Graham Bird & Ramkishen Rajan, 2002. "The Evolving Asian Financial Architecture," Centre for International Economic Studies Working Papers 2002-03, University of Adelaide, Centre for International Economic Studies.
    7. Steve H. Hanke, 2002. "Currency Boards," The ANNALS of the American Academy of Political and Social Science, , vol. 579(1), pages 87-105, January.
    8. PONSOT, Jean-François, 2000. "Le Currency Board : les contraintes de financement et d'ajustement de la convertibilité intégrale," LATEC - Document de travail - Economie (1991-2003) 2000-10, LATEC, Laboratoire d'Analyse et des Techniques EConomiques, CNRS UMR 5118, Université de Bourgogne.

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