United States weakening dollar trend is difficult dammed. The strengthening of rupiah suggest buying the limited intervention by Bank Indonesia has been too large due to excess domestic liquidity.
Flood Alert Dollars
The continued fall of the dollar would theoretically demonstrated by the sharp decline in money supply velocity (velocity of money, V) in the United States. V measured by the ratio of nominal gross domestic product (nominal GDP) of the money supply such as M2 or M3.
Persistent decrease in V reveal that money supply growth is more rapid than its use to drive the real sector. Naturally the price of money down when supply exceeds the demand. Internally, this is reflected in rising inflation and externally in a weakening exchange rate against foreign currencies.
Persistent decrease in V we have experienced since 1983 that the banking liberalization contribute to the 1998 financial crisis to sow virus. For decreasing V marks the low productivity of dollars to drive the production sector. In addition to the political crisis, the fall of the rupiah is based on the dollar in line with the positive trend of V in the U.S..
The situation is now turning : Indonesia, 1999, AS 2009. Similarly, the issuance of T-
bond to finance the economic recovery that led to U.S. financial crisis torn increasingly flooding the world with dollars. The position of the U.S. national debt as of September 2009 reached $ 12 trillion dollars (about 85% of GDP), soared 100% since September 2001.
The strengthening dollar as only occurs at the peak of financial crisis due to melting the various investment securities into cash dollars. But along with improved perception and low money market yields, investors began to reduce the position of the dollar. This has spurred soaring prices of energy and precious metals as well as the stock of developing countries.
The continued fall of the dollar would theoretically demonstrated by the sharp decline in money supply velocity (velocity of money, V) in the United States. V measured by the ratio of nominal gross domestic product (nominal GDP) of the money supply such as M2 or M3.
Persistent decrease in V reveal that money supply growth is more rapid than its use to drive the real sector. Naturally the price of money down when supply exceeds the demand. Internally, this is reflected in rising inflation and externally in a weakening exchange rate against foreign currencies.
Persistent decrease in V we have experienced since 1983 that the banking liberalization contribute to the 1998 financial crisis to sow virus. For decreasing V marks the low productivity of dollars to drive the production sector. In addition to the political crisis, the fall of the rupiah is based on the dollar in line with the positive trend of V in the U.S..
The situation is now turning : Indonesia, 1999, AS 2009. Similarly, the issuance of T-
bond to finance the economic recovery that led to U.S. financial crisis torn increasingly flooding the world with dollars. The position of the U.S. national debt as of September 2009 reached $ 12 trillion dollars (about 85% of GDP), soared 100% since September 2001.
The strengthening dollar as only occurs at the peak of financial crisis due to melting the various investment securities into cash dollars. But along with improved perception and low money market yields, investors began to reduce the position of the dollar. This has spurred soaring prices of energy and precious metals as well as the stock of developing countries.
What's Up With Rupiahs?
Exchange rate of rupiah against the U.S. dollar around 9399 in the inaugural day of SBY's spouse as the President and the years of the rupiah has gained 15.5%.
Exchange rate of rupiah against the U.S. dollar around 9399 in the inaugural day of SBY's spouse as the President and the years of the rupiah has gained 15.5%.
Strengthening is very large compared to the index of Asian currencies against the dollar [Bloomberg: ADXY curncy] that only 3%. While the index of major world currencies, including the Euro, against the dollar [Bloomberg: ADXY curncy] rose 7.45%.
Chinese yuan exchange rate seems the most stable at 6.83 per dollar. Whereas during the year to September 2009, there was accumulation of international reserves to USD 326 billion to reach the position of nearly USD 2.3 trillion.
The strengthening of rupiah indeed reflect the supply of foreign currency from international trade and investment both portfolio and real sector. Until August 2009, the cumulative balance of payments surplus reached U.S. $ 10.9 billion or an increase of U.S. $ 5.9 billion (117%) compared to cumulative year 2008. While the cumulative increase in international reserves until September 2009 to reach U.S. $ 10.7 billion (20.6%) to the position of U.S. $ 62.3 billion. The accumulated foreign exchange reserves bigger than the trade balance surplus marked the strengthening of the rupiah is supported by capital inflows. During the balance of payments surplus, can not be evaluated overvalued rupiah.
Chinese yuan exchange rate seems the most stable at 6.83 per dollar. Whereas during the year to September 2009, there was accumulation of international reserves to USD 326 billion to reach the position of nearly USD 2.3 trillion.
The strengthening of rupiah indeed reflect the supply of foreign currency from international trade and investment both portfolio and real sector. Until August 2009, the cumulative balance of payments surplus reached U.S. $ 10.9 billion or an increase of U.S. $ 5.9 billion (117%) compared to cumulative year 2008. While the cumulative increase in international reserves until September 2009 to reach U.S. $ 10.7 billion (20.6%) to the position of U.S. $ 62.3 billion. The accumulated foreign exchange reserves bigger than the trade balance surplus marked the strengthening of the rupiah is supported by capital inflows. During the balance of payments surplus, can not be evaluated overvalued rupiah.
Interventions Limitations Buy
Really could be the strengthening of the rupiah was also associated with limited intervention buying currency by the central bank. To reduce the strengthening of its currency so as not to undermine export competitiveness, the central bank of a country can buy foreign exchange intervention by removing the local liquidity. As a result an increase in foreign reserves which controlled the central bank together with the excess domestic liquidity.To reduce the impact of inflation, central banks often absorb excess liquidity through open market operations. In our case, the absorption is done by issuing SBIs. The estimated position of the SBI as of September 2009 reached Rp243 trillion. This figure is very large, about 400% equity or 31% of total assets of Bank Indonesia.
Excess liquidity is the legacy of the 1998 financial crisis which requires the government issued government securities to recapitalize banks. The amount of foreign interest on bank recapitalization reduces facilitate SUN SUN positions in their balance sheets. Indeed some liquidity from the sale of securities that are used to finance credit. But still great placed in the SBI.
