Trust and the Exchange Rate

Positive policies and projections of the Indonesian economy are the capital to gain investor trust. This, among others, is seen in the rupiah exchange rate.

KOMPAS/RADITYA HELABUMI

An officer shows US dollar currency at the Bank Mandiri cash center, Jakarta, Tuesday (5/4/2022).

In the middle of 2022, the rupiah exchange rate touched Rp 15,000 per United States dollar. As of 24 January 2023, the rupiah exchange rate strengthened slowly, moving away from Rp 15,000 per US dollar. According to Jakarta Interbank Spot Dollar Rate (Jisdor), the exchange rate on Friday (3/2/2023) was Rp 14,898 per US dollar.

Jisdor, according to the Bank Indonesia (BI) website, is the price of a US dollar spot on the rupiah, which is compiled based on interbank transactions in the Indonesian foreign exchange market. Thus, Jisdor is a market price reference for US dollar-rupiah transactions.

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At the bank, yesterday, people who needed US dollars had to prepare varying rupiah, depending on the exchange rate at the bank. There were banks that set the rupiah at 14,903 per US dollar, 14,899 per US dollar and also 14,999 per US dollar. Usually, people who need US dollars regularly have prepared funds in advance or use hedging to anticipate turbulent exchange rates.

The community's needs for US dollars vary. Some need it to pay for imported raw materials and capital goods in the production process, some to finance business and school needs abroad. Some exchange rupiah to the US dollar to travel abroad. There are also those who need US dollars to pay debts.

MICHAEL M. SANTIAGO/GETTY IMAGES/AFP

Traders work on the floor of the New York Stock Exchange (NYSE) during morning trading on February 01, 2023 in New York City. Stocks opened low this morning amid news of another interest rate increase by the Federal Reserve in its continued effort to slow inflation.

For people who need US dollars, the exchange rate is very important. Similarly, for exporters and importers. The US dollar exchange rate that strengthens against the rupiah makes exporters smile broadly. Moreover, if the goods exported are made from local raw materials. Conversely, the importers will smile wryly because they have to spend a greater value of rupiah.

Once, in the past, a number of company transactions in the country used currencies other than rupiah, the majority in the form of US dollars. As a result, the need for US dollars jumped at certain times, thereby making the exchange rate against the rupiah strengthen. In 2015, for example, BI emphasized the use of rupiah for domestic-payment transactions, according to Law Number 7 of 2011 on Currency. In 2015, the rupiah exchange rate of Rp 12,000 at the beginning of the year had touched Rp 14,000 at the end of the year.

The US dollar exchange rate that strengthens against the rupiah makes exporters smile broadly.

Various problems in the domestic and global economy can be intertwined and affect the exchange rate. The trust and expectations of investors and owners of funds in facing domestic and global policies tend to make the exchange rate stable. That also happened when the Central Bank of the US, the Federal Reserves (Fed), again raised the benchmark interest rate to control inflation. Investors do not attract funds from Indonesia. The rupiah exchange rate tends to be stable.

This article was translated by Hyginus Hardoyo.