Tuesday, September 9, 2008

The Rupiah: Dead Currency Walking?

I’m no economics whiz – just ask my high-school math teacher – but I don’t get why the rupiah is so embattled at the moment. The Indonesian central bank recently had to sell a couple of billion dollars to shore it up … which might not sound like much in a global framework, but when you only have so much in international reserves to play with, it’ll buy more than a few plates of nasi goreng.

When you consider Indonesia’s relatively tight monetary policy, with interest rates approaching 10% to tamp down inflation, the rupiah shouldn’t be such a weak sister. But then, the currency flu seems to be going around: Russia is selling dollars to prop up the ruble after its invasion of Georgia, other Asian central banks are intervening to support their own currencies, and the British pound is looking like a house of cards.

It might be that the rupiah’s shakiness is more to do with global trends, and not so much with anything Indonesia is doing in and of itself. World economies are slowing, ‘demand destruction’ is taking place, and that means most commodity-oriented economies like Indonesia (and their currencies) are getting slapped around mightily.

A rough phase, but hopefully a temporary one. After all, who would’ve thought that the longtime butt of currency-trader jokes - the US dollar - would finally be showing some strength?

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