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

  • Reza Siregar

    ()

    (School of Economics, University of Adelaide, Australia)

  • Ramkishen Rajan

    ()

    (School of Economics, University of Adelaide, Australia)

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.

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Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2004-03.

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Length: 30 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:adl:cieswp:2004-03
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  1. Colin Johnson, 1998. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 34(2), pages 3-59.
  2. 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.
  3. Graham Bird & Ramkishen Rajan, 2003. "Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises," The World Economy, Wiley Blackwell, vol. 26(6), pages 873-891, 06.
  4. Barry J. Eichengreen & Donald J. Mathieson, 2000. "The Currency Composition of Foreign Exchange Reserves; Retrospect and Prospect," IMF Working Papers 00/131, International Monetary Fund.
  5. Tony Cavoli & Ramkishen Rajan, 2003. "Designing Appropriate Exchange Rate Regimes for East Asia: Inflation Targeting and Monetary Policy Rules," Centre for International Economic Studies Working Papers 2003-09, University of Adelaide, Centre for International Economic Studies.
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