A country’s economic policy is divided into two policies, namely monetary policy and monetary policy. If fiscal policies are related to the income and expenditures of the states Monetary policy is the policy that deals with the circulation of money in a country.
Monetary policy in the country is managed by an institution known as a central bank. Although the name is a bank But the functions and functions of this institution are different from that of banks in general. So what is the role of the central bank and what does it mean? Check out the following comments:
central bank definition
The central bank is the institution responsible for formulating and managing monetary policy in the country. There is usually only one central bank in each country. in the case of Indonesia This institution is named Bank Indonesia (BI), while in the United States it is called the Federal Reserve (The Fed).
Bank Indonesia was founded in 1927 by the Dutch colonial government under the name De Javasche Bank (DJB). Initially, DJB’s job was to print and distribute money throughout the Dutch East Indies. However, during that time, DJB was acquired by the Indonesian government. and the duties of the DJB, including managing monetary policy in general.
Despite its status as a state institution But Bank Indonesia is not owned by the country’s government. Since 1999 it has become an independent state institution. so that institutions can set various monetary policies freely without government intervention
The purpose of establishing a central bank
on the official website bank indonesia He stated that his only task was to achieve and stabilize the Rupiah exchange rate both on goods and services, as well as with the currencies of other countries.
This goal is important for Indonesia’s economic stability. The stability of the Rupiah exchange rate on goods and services can be interpreted as the price of goods and services in Indonesia must be maintained in such a way that it does not go up or down suddenly. A country may mean that the prices of exports and imports cannot fluctuate arbitrarily.
Of course, you still remember the 1998 crisis where the exchange rate of the Rupiah to the Dollar rose from an initial 2,500 Rupiah, equivalent to $1, to $16,000, equivalent to $1, in just a few months. As a result, import prices rose and exports slowed down. As a result, the price of basic necessities, oil and other daily necessities more expensive This is important in maintaining the stability of the Rupiah exchange rate.
functions of the central bank
According to Law No. 23 of 1999, there are three functions of the Indonesian central bank:
- Determine and implement monetary policy
- Organize and maintain the smooth operation of the payment system.
- Supervise and supervise banking
Let’s talk one by one:
1. Determine and implement monetary policy
Simply put, there are two economic indicators that need to be addressed in monetary policy. Two economic indicators are inflation and interest rates. inflation is the simultaneous increase in the price of the goods, while the interest rate is the reward that the borrower pays. (both retail and institutional borrowers to individual investors or institutional investors)
Both inflation and interest rates are two things that are inherent in a country’s economic engine. The country’s economy could collapse.
In this case, Indonesia’s central bank sets inflation targets and benchmark interest rates. Inflation targets are estimates or expectations of the maximum rate of price increase a country can achieve. The reference interest rate is the interest rate that must be followed by the general bank interest rate. Both interest on deposits and interest on loans
In other words, if BI cuts the benchmark interest rate Interest rates on deposits, savings and bank loans should also be reduced. and vice versa So people will borrow more from the bank or not add a little to their savings. As a result, the level of consumption and the economy increased.
2. Control and maintain the smooth operation of the payment system.
The second task of BI is to regulate and maintain the smooth functioning of the payment system in Indonesia. but also the infrastructure necessary to control and maintain the smoothness of the payment systems and processes operated by the various economic actors in this country.
Recently, Bank Indonesia developed BI Fast as an infrastructure that replaces Bank Indonesia National Clearing System (SKNBI) for processing small-value payments.
With BI Fast, you can transfer money between banks in minutes. And it only charges IDR 2,500 per transaction. Of course, this advance is more efficient than an interbank transfer using SKNBI which takes 1 day and costs IDR 6,500 per transaction.
3. Supervise and supervise banking
Bank Indonesia’s third task is to regulate and oversee the banking system, or more precisely, to control and stabilize the financial system in Indonesia. In this fair, Bank Indonesia is authorized to provide loan (liquidity) funds to banks or financial institutions. desired Buy or sell government securities (SUN) or State Sharia Securities (SBSN), etc.
in the context of the bank Bank Indonesia will only regulate and supervise the macro banking policies in this country. The reason is that since 2011, the traditional banking supervision works. microprudential has been submitted to the Financial Services Authority (OJK).
An example of the importance of a central bank
Indonesia is one of the countries whose economy has been hit by the COVID-19 pandemic to support the country’s growth process. Bank Indonesia has implemented various policies. Some of them are:
- Cut the reference interest rate from 5% to 3.5% during the pandemic.
- Reduce the minimum bank reserves (reserve requirements) Up to 200 Basic Points for Commercial Banks and 50 Basic Points for Islamic Banks. The goal is for banks to have more capital to distribute to the public.
- Support for government aid programs that are distributed on a non-cash basis. One of which is to increase socialization. QRIS for non-cash payments.
- Respite the policy to set the maximum interest limit for credit card loans. Reduce the minimum limit for credit card payments. Reduce the penalty for late credit card payment and assist credit card institutions with various liquidity programs.
with a project like this Hopefully the community will find it easier to raise money to open a business or buy items for everyday use. You may not directly feel the impact of Indonesia’s central bank project. But through commercial banks that pay credit card installments or credit interest that you have to bear.