Indonesia and High Denomination Banknotes

Why does Indonesia have such large denominations? The Indonesia banknote comes in 1,000 to 100,000 rupiah denominations. The 100,000 is only worth about $7 US dollars. The average monthly wage is around 6 million rupiah, or $420. Why not make a larger note or take some zeros off? The answer is perception and potential capital flight.

Indonesia is one of the most populous countries in the world with nearly 270 million citizens.  It is made of comprised of 17,508 islands and has affluent cities and areas of abject poverty.  It won independence in 1947 from the Dutch who had been the dominant European influence for more than 200 years.  Since the early 2000’s Indonesia has had relative prosperity and peace.  But prior to that time, there was some political upheaval and intermittent high inflation.

It was during that time, in the 80’s and 90’s that the highest Indonesian banknote denomination increased from the 10,000 (1984) to 20,000 (1992) to 50,000 (1993) to 100,000 (1998).   But since then, the maximum rupiah has stayed 100,000.

It seems surprising but both adding a higher denomination or redenominating to take zeros off can make citizens worry that there is an economic problem and inflation.  Unlike countries like Zimbabwe and Venezuela which have high denominations due to hyperinflation, Indonesian banknotes have not had the same economic woes.  So they keep their 100,000 rupee note.   The other reason they don’t add a larger note is to make it harder for cash to leave the country.  In some countries with economic distress, people with money try to take their money out of the country.  This has happened recently in Venezuela and Greece.  A government can stop money from leaving a bank electronically, but it is hard to stop someone who is trying to smuggle suitcases of cash out of a country.  A good size carry-on can hold about 20,000 banknotes.  In US money, that would be $2 million.  But in Indonesia, that is only equal to $140,000.

If you are rich and want to smuggle your cash out of Indonesia, you would need a lot of suitcases.  If you just want to look at or collect the banknotes, the current series is attractive and all of them show local dancing on the reverse.