Too many zeroes on banknotes invites inflation by making it too easy to round up prices, says Indonesia’s incoming central bank Governor Darmin Nasution. With the rupiah trading at 9,000 to US$1, the country is seriously considering a redenomination.

This would also simplify daily transactions and make transactions with other Asean countries easier. As well as having to count in numbers otherwise not encountered in everyday life, many Indonesian retailers don’t even bother with smaller amounts, rounding up prices or even giving small change in sweets instead of coins. Increasingly cashless transactions would reduce the potential for errors in electronic systems, where one missing zero can have an enormous impact.

Indonesia is in no great rush to introduce a change, though. The government as reassured people the redenomination is “only a study” at this stage and no changes would happen before 2013 or without extensive public consultation.

Indonesia’s inflation rate is already at 6.22% and its Rp 100,000 ($11.20) note is the second-highest denominated note in the world. While economic disaster zones North Korea and Zimbabwe only devalued their currencies further by lopping off zeroes, more stable economies like Turkey and Romania succeeded by bringing inflation under control before doing the same.

source & article: The Jakarta Globe