Title: Adapting to zeroes: investigating the need for a transition period in the proposed Rupiah redenomination plan

Authors: Harryadin Mahardika; Agung Yoga Sembada; Erita Narhetali

Addresses: Faculty of Economics and Business, Department of Management Universitas Indonesia, 16424, Indonesia ' Department of Marketing, Sunway University Business School, 47500, Malaysia ' Faculty of Psychology, Universitas Indonesia, 16424, Indonesia

Abstract: The Indonesian central bank is deliberating upon a plan to redenominate the Indonesian currency within a few years by removing three zeroes. Recent research in behavioural psychology has suggested that the face nominal value of a currency affects the individual's consumption behaviour. That is, people's perception of value (how expensive or cheap an item is) will be distorted when dealing in a new, unfamiliar currency. We investigated this phenomenon by way of experiments using a questionnaire. We asked respondents to estimate the value of several goods in various types of Rupiah formats (old × new × dual) and found evidence to suggest that people's estimates of value were significantly more volatile and inaccurate if they use the new Rupiah format without a transition period, despite the new Rupiah being only three zeroes removed from the old one. Policy implications and suggested future research are formulated in light of these findings.

Keywords: transition period; rupiah redenomination; Indonesian central bank; Indonesian currency; Bank Indonesia; behavioural economics; social psychology; consumption behaviour; value perception; consumer perceptions.

DOI: 10.1504/JIBED.2015.072925

Journal for International Business and Entrepreneurship Development, 2015 Vol.8 No.4, pp.346 - 361

Received: 19 Nov 2013
Accepted: 03 Jun 2014
Published online: 08 Nov 2015 *

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