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Determining Factors Urge a Redenomination

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Determining Factors Urge a Redenomination DETERMINING FACTORS URGE A REDENOMINATION ABSTRAK Sri Wahyu Handayani The purpose of this research was examined factors urge a redenomination. While decisions on denomination and design of currencies may seem more technical than political, a government’s Universitas Gunadarma, control and administration of its currency and transactions within its boundaries is one of the [email protected] hallmarks of the modern nation-state. With the discourse of the Indonesian central bank researchers wanted to investigate about the proper inflation level to take the redenomination. This Research aims at analysing the effect variable of inflation, exchange rate and index democracy on redenomination, and to identify the most variable than in affective redenomination.The population of this research is a country that is listed at the World Bank. Data used is secondary data. By using a purposive sampling method states that have complete data in the research consisted of 36 countries. The data is analyzed using of binary logistic regression statistical tests and with the help of SPPS V.13.0 software and Microsoft Excel 2007.The results of this research indicate that (1) exchange rate no significant effect on the decision to redenomination, (2) Form of government no significant effect on the decision to redenomination, (3) inflation significantly influence decisions redenomination of the most special is the inflation t-5. A country does not do redenomination is directly due to the socialization and factors - factors of conflict within a countries. Keyword: Redenomination, Exchange Rate, Inflation, and Form of Government. INTRODUCTION 100, 1,000, and so on. This procedure can be exchange rate is also influenced by government referred to as "the removal of zero. policies, including devaluation and revaluation. Since 1960, governments of developing and With the discourse of the Indonesian central transition economies have redenominated their bank researchers wanted to investigate about Form of government currencies on approximately seventy occasions the proper inflation level to take the (Mosley,2005). Redenomination generally redenomination. Previous research analyzed The Freedom House in “The Economist involves the process whereby a country’s using survival analysis to examine the Intelligence Unit’s index of democracy “(kekic, currency is recalibrated through reduction in expectations for conduct redenominated. 2007) says that the definition of political the number of zeros in the currency with a Therefore, researchers wanted to test Factors freedom is somewhat (though not much) more view to achieving a set of given economic and Urge A Redenomination. demanding than its criteria for electoral fiscal objectives. This research discusses the factors that democracy—i.e., it classifies more countries While decisions on denomination and drive countries to carry out redenomination. as electoral democracies than as “free” (some design of currencies may seem more technical Factors that drive redenomination are studied, “partly free” countries are also categorized as than political, a government’s control and such as the level of appreciation, the form of electoral democracies). At the end of 2005, administration of its currency and transactions government and the exchange rate. 122 states were classifying end as electoral within its boundaries is one of the hallmarks Redenomination referred to in this study is the democracies; of these, 89 states were classified of the modern nation-state. Even though such policy of eliminating zeros on the currencies as free. The Freedom House political-freedom monetary control began in the mid-nineteenth of countries that carry out redenomination. measure covers the electoral process and century, today, the main struggle is still to political pluralism and, to a lesser extent, the maintain this control, particularly in the face Redenomination functioning of government and a few aspects of civil conflict or economic collapse of participation. (Woodruff, 1990 in Mosley, 2005). Currency redenomination is the process where The central bank of Indonesia through the a new unit of money replaces the old unit with Inflation Indonesian central bank governor Darmin, on a certain ratio. It is achieved by removing zeros 2 August 2010 stated that the discourse made from a currency or moving some decimal points Akinboade, Siebrits and Roussot (2006) state possible redenominated IDR. Redenominated to the left, with the aim of correcting perceived that “low inflation is taken to be a sign of is a reduction in the value of the currency misalignment in the currency and pricing internal economic stability in the host country. denomination without reducing its value. Forms structure, and enhancing the credibility of the High inflation indicates the inability of the redenominated dollars being initiated by the local currency (CBN, 2007). According to government to balance its budget and the failure BI is to eliminate the last three zeros. So Moeslay (2005) redenomination also extends of the central bank to conduct appropriate fractional 1,000 will be IDR 1. BI has made to adding of zeros to the currency as recorded monetary policy.” In other words, inflation can study visits to countries that have done in the immediate post-independence period by be used as an indicator of the economic and redenominated value of its currency as well as South Africa (1961), Sierra Leone (1964), political condition of the host country, but the Turkey and Romania. Ghana (1965), Australia (1966), The Bahamas differences between “high” inflation and “low” Redenominated is cutting the value of a (1966), New Zealand (1967), Fiji (1969), the inflation is not distinct currency becomes smaller without changing Gambia (1971), Malawi (1971) and Nigeria Based on the above theoretical basis, it its exchange rate. In times of inflation, the (1973). According to CBN (2007) however, can be formulate the following hypotheses. same amount of monetary units have slowly adding of zeros to the currency is called Hypotheses1: simultaneously exchange weakened purchasing power. In other words, decimalization, which in management of rate, inflation and form of government influence the price of products and services must be currencies, is the process of converting from redenomination and its driving factors. written with a larger amount. When these traditional denominations to a “decimal” Hypotheses 2: partially exchange rate, numbers are getting bigger, they can affect system, usually with two units differing by a inflation and form of government influence daily transactions because of the risks and factor of 100. redenomination and its driving factors discomfort caused by a number of bills that must be taken, or because of human psychology Exchange rate RESEARCH METHOD that is not effectively handle large number calculation. The authorities can minimize this According to Akinboade, Siebrits and Roussot Type data used in this research is data secondary problem by redenominated: The new unit (2006) if the value of a currency decreased which obtained through Inflation data from the replaces the old unit with a certain number of against the domestic currency, then this World Bank, World Development Indicators units of the old converted into a new unit. If condition is called depreciation (foreign annual percent change in consumer prices redenominated reason is inflation, the currency more expensive, this means the index, Nation Master, and The Economist conversion ratio can be greater than 1, usually relative value of domestic currency Intelligence Unit's index of democracy. Data a positive number multiple of ten, such as 10, declined).The establishment of the domestic necessary in this research cover inflation 08 UG Jurnal Vol. 14 Edisi 05 Mei 2020 exchange rate and form of government which the processing variables used in this study are countries that have redenomination. used as redenomination variable. presented in Table 1. Table 1 shows 25 redenomination and Analysis data consist of influence rate Table 1 shows that the minimum and zero Countries 11 countries never redenomination. inflation against action monetary redeno- values ?? are one. This shows that the zero Twenty-five countries that have been mination of cover influence redenomination value is that the State has never redenominated redenomination on one occasion and several against inflation t-2, t-1 and t and inflation t2 and the value of one is for countries that have countries have undertaken numerous and t1, influence redenomination against form redenominated. There are 25 redenomination redenominations. In the case of Brazil 1980- if government and influence redenomination and 11 countries have never been redeno- 1995 period do redenomination 4 times. Brazil against exchange rate. Analysis which covers minated. Twenty-five countries have been is the countries most often do redenomination. is analysis logistic regression. In research, redenominated at one opportunity and some While Bolivia 2 times do redenomination in method analysis data done is, descriptive countries have done redenomination several 1963 and 1987. And not all Countries analyze, analysis logistic regression and times. In the case of Brazil in the 1980-1995 redenomination action during periods of high hypotheses test. In research This, Which period, it was redenominated 4 times. Brazil inflation countries such as Ghana in 1977 analyzed is redenomination of influence level is the country most often redenominated. with 116.45% inflation
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