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THE CASE FOR AN INDONESIAN CURRENCY BOARD
Author(s) -
Culp Christopher L.,
Hanke Steve H.,
Miller Merton H.
Publication year - 1999
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/j.1745-6622.1999.tb00514.x
Subject(s) - currency board , currency , devaluation , reserve currency , indonesian , context (archaeology) , foreign exchange reserves , government (linguistics) , economics , politics , virtual currency , business , monetary economics , international economics , financial system , political science , law , paleontology , linguistics , philosophy , biology
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.