In
1828 De Javasche Bank was established by the Netherlands Indies
Government as a circulation bank in charge of printing and circulating
money.
In 1953, the Bank Indonesia Basic Law stipulated the establishment of
Bank Indonesia to replace the De Javasche Bank function as a central
bank, with three main tasks in the monetary, banking and payment system
sectors.
In addition, Bank Indonesia was given another important task in
relation to the Government and continued the function of the commercial
bank performed by the previous DJB.
In 1968 a Central Bank Law was issued which regulates the position and
duties of Bank Indonesia as a central bank, separate from other banks
that perform commercial functions.
In addition to the three main tasks of the central bank, Bank Indonesia
is also tasked with assisting the Government as an agent of development
to encourage smooth production and development as well as expand
employment opportunities to improve people's lives.
1999 was a new chapter in the history of Bank Indonesia, in accordance
with Law No. 23/1999 which established Bank Indonesia's sole objective
of achieving and maintaining the stability of the value of the rupiah.
In 2004, the Bank Indonesia Law was amended with a focus on important
aspects related to the implementation of the tasks and authority of Bank
Indonesia, including strengthening governance .
In 2008, the Government issued Government Regulation in lieu of Act No.
2 of 2008 concerning the Second Amendment to Act No.23 of 1999
concerning Bank Indonesia as part of efforts to maintain financial
system stability.
Amendments are intended to improve the resilience of national banks in
the face of the global crisis through increased banking access to the
Short Term Financing Facility from Bank Indonesia.
Bank Indonesia (BI) is the central Bank Of The Republic Indonesia in
accordance with Article 23D of the Constitution of the Republic of
Indonesia (UUD) and Act Number 23 of 1999 concerning Bank Indonesia. Before being nationalized in accordance with the Basic Law of Bank Indonesia on July 1, 1953, this bank was named De Javasche Bank (DJB), which was established based on the Octroi during the Dutch East Indies government. As a central bank, BI has the sole purpose of achieving and maintaining the stability of the rupiah. The stability of the rupiah's value contains two dimensions, namely the stability of the value of the currency against domestic goods and services (inflation), as well as the stability of other countries' currencies (exchange rates).
To achieve this goal, BI is supported by three pillars which constitute its three fields of work. These three tasks are:
- Determine and implement monetary policy
- Regulating and maintaining a smooth payment system, as well as
- Maintaining financial system stability in Indonesia.
These three tasks are carried out in an integrated manner so that the goal of achieving and maintaining the stability of the rupiah value can be achieved effectively and efficiently. After the task of regulating and supervising banks was transferred to the Financial Services Authorit , BI's duty in regulating and supervising banks remained in force, but focused on the macroprudential aspects of the banking system.
💁 Legal Basis for Establishment of Bank Indonesia
The
establishment of Bank Indonesia was preceded by the process of
nationalization of De Javasche Bank NV (DJB) which was carried out in
December 1951 based on Act (Law) Number 24 of 1951 concerning the
De-nationalization of De Javasche Bank NV. After DJB was nationalized, the Republic of Indonesia established Bank
Indonesia based on Act Number 11 of 1953 concerning the Stipulation of
the Basic Law of Bank Indonesia which was passed on May 19, 1953,
promulgated June 2, 1953, and entered into force July 1, 1953 date of enactment of the Act is also celebrated as the birthday of Bank Indonesia. In addition, the Act states that Bank Indonesia was established to act as Indonesia's central bank.
In its journey, the role of the Indonesian bank underwent changes in
accordance with economic, social and political dynamics both national
and global.
In line with that, the Law which is the legal basis for the existence
of Bank Indonesia has experienced changes and improvements.
The current law that forms the basis of Bank Indonesia law is Law
Number 23 of 1999 concerning Bank Indonesia (which has been amended
several times, most recently with Law No. 6 of 2009).
Not only at the level of the Act, fundamental changes also occur at the constitutioanl level
The Fourth Amendment of the 1945 Constitution of the Republic of
Indonesia (1945 Constitution), inserted a new article, 23D, which reads,
"The State has a central bank whose composition, position, authority,
responsibility and independence are regulated by law."
💁 Status and Position of Bank Indonesia
As an Independent State Institution
The new chapter in the history of Bank Indonesia as an independent Central Bank began when a new law, Act No. 23/1999 concerning Bank Indonesia, was declared effective on May 17, 1999. This law gives status and position as an independent state institution and free from interference from the government or other parties.
As an independent state institution, Bank Indonesia has full autonomy
in formulating and carrying out each of its duties and authorities as
stipulated in the law.
Outside parties are not permitted to interfere in the implementation of
the tasks of Bank Indonesia, and Bank Indonesia is also obliged to
refuse or ignore any form of intervention from any party. To further guarantee such independence, this law has given Bank Indonesia a special position in the constitutional structure of the Republic of Indonesia. As an independent state institution, the position of Bank Indonesia is not in line with the State Higher Institutions. In addition, the position of Bank Indonesia is also not the same as the Department, because the position of Bank Indonesia is outside the Government.
This special status and position is needed so that Bank Indonesia can
carry out its role and function as a monetary authority more effectively
and efficiently.
As a Legal Entity
The status of Bank Indonesia as both a public legal entity and a private legal entity is determined by law.
As a public legal entity, Bank Indonesia has the authority to determine
legal regulations which are the implementation of laws that bind the
entire community in accordance with their duties and authorities. As a civil legal entity, Bank Indonesia can act for and on its own behalf inside and outside the court.
💁 Bank Indonesia Objectives and Tasks
In its capacity as a central bank, Bank Indonesia has one single goal, namely achieving and maintaining the stability of the rupiah. The stability of the rupiah's value contains two aspects, namely the stability of the value of currencies against goods and services, as well as the stability of currencies of other countries. The first aspect is reflected in the development of the inflation rate, while the second aspect is reflected in the development of the rupiah exchange rate against other countries' currencies.
The formulation of this single objective is intended to clarify the
objectives to be achieved by Bank Indonesia and the limits of its
responsibilities. Thus, whether or not the objectives of Bank Indonesia can be achieved later can be easily measured.
Three Main Pillars
To achieve this goal Bank Indonesia is supported by three pillars which constitute its three fields of work. These three areas of assignment are:
- Establish and implement monetary policy.
- Organize and maintain a smooth payment system, as well as
- Maintaining financial system stability.
💁 Bank Regulation and Supervision
In
the context of the task of regulating and supervising banks, Bank
Indonesia stipulates regulations, grants and revokes licenses for
certain institutions or business activities of banks, carries out supervision of banks, and imposes sanctions on bank in accordance with applicable laws and regulations.
In carrying out this task, Bank Indonesia has the authority to
determine banking regulations by upholding the precautionary principle.With regard to authority in the area of licensing, in addition to
granting and revoking business licenses of banks, Bank Indonesia can
also provide licenses for opening, closing and moving bank offices,
giving approval for bank ownership and management, and granting licenses
to banks to carry out certain business activities.
In the area of supervision, Bank Indonesia conducts direct and indirect supervision. Direct supervision is carried out both in the form of periodic checks and at any time if necessary. Indirect supervision is carried out through research, analysis and evaluation of reports submitted by banks.
💁 Efforts to Restructure Banking
In an effort to rebuild public confidence in the Indonesian financial system and economy, Bank Indonesia has taken comprehensive banking restructuring steps.
This step is absolutely necessary to re-function the banking sector as
an intermediary institution that will encourage economic growth, while
simultaneously increasing the effectiveness of the implementation of
monetary policy.
The banking restructuring was carried out through efforts to restore public confidence, the recapitalization program, the credit restructuring program, the improvement of banking regulations, and the improvement of the bank supervisory function.
💁 Payment System
Maintaining the stability of the rupiah exchange rate is the goal of Bank Indonesia as mandated by Act No. 23 of 1999 concerning Bank Indonesia.
To maintain the stability of the rupiah, it is necessary to support the
regulation and management of the smoothness of the National Payment
System (SPN). The smoothness of this SPN also needs to be supported by reliable infrastructure (robust). So, the more smooth and reliable the SPN is, the smoother the time critical monetary policy transmission will be. If monetary policy runs smoothly, the outcome will be exchange rate stability.
BI is an institution that regulates and maintains the smoothness of SPN. As a monetary authority, the central bank has the right to set and enforce SPN policies. In addition, BI also has the authority to issue approvals and permits and conduct oversight of the SPN. Recognizing the smooth operation of SPN that is systemically important, the central bank deems it necessary to implement an interbank settlement system through the BI- Real Time Gross Settlement (BI-RTGS) infrastructure.
In addition there are still BI's duties in the SPN, for example, the role of the organizer of the interbank clearing system for certain types of payment instruments. The central bank is also the only institution that has the right to issue and circulate cash payment instruments such as rupiah. BI also has the right to revoke, withdraw and destroy rupiah currency which is no longer valid from circulation.
Armed with this authority, BI also established a number of policies from this SPN component. For example, what payment instruments may be used in Indonesia.
BI also determines the standard of the payment instruments and the
parties that can issue and / or process the payment instruments. BI also has the right to establish institutions that can operate payment systems. Take for example, a clearing system or transfer funds, either a whole system or just part of the system. The central bank also has the authority to appoint institutions that can implement a settlement system. In the end, BI must also determine policies related to risk control, efficiency and governance of SPN.
On the cash payment instrument side, Bank Indonesia is the only institution
authorized to issue and circulate Rupiah and withdraw, withdraw and
destroy money from circulation. With regard to the role of BI in issuing and circulating money, Bank Indonesia always strives to be able to meet the needs of currensy in the community both in sufficient nominal terms, suitable types of fractions, on time, and in conditions that are worthy of circulation ( clean money policy ). To realize the clean money policy
, the management of money circulations carried out by Bank Indonesia is
carried out starting from the issuance of money, circulation of money,
revocation and withdrawal of money until the destruction of money.
Before making a Rupiah expenditure, planning is done so that the money
spent is of good quality so that public confidence is maintained. Planning conducted by Bank Indonesia includes planning for issuing new emissions by considering the level of counterfeiting, intrinsic value and the circulation period of money. In addition, planning is also carried out on the amount and composition of banknotes to be printed over the next year.
Based on this plan, the procurement of money for issuance of new
issuance money and routine printing of old issuance money is then
carried out.
The Rupiah has been issued and then distributed or circulated throughout the region through the Bank Indonesia Office.
The need for Rupiah in each Bank Indonesia office is based on the
amount of inventory, the need for payment, exchange and replacement of
money for a certain period. Distribution activities are carried out through land, sea and air transportation facilities.
To ensure the safety of distribution channels, it is always carried out
either through adequate escort or by improving monitoring system
facilities.
Circulation of money is also carried out through cash services to commercial banks and the general public. Cash services to commercial banks are carried out through receipt of deposits and Rupiah payments.
Whereas the public is carried out through direct exchange through
exchange counters throughout Bank Indonesia offices or through
cooperation with companies that provide small currency exchange
services.
Furthermore, the activity of managing Rupiah money carried out by Bank Indonesia is the revocation of money on a fraction with a certain issuance year which is no longer valid as a legal instrument of payment. Revocation of money from circulation is intended to prevent and minimize the circulation of counterfeit money and simplify the composition and emissions of fractions. The revoked Rupiah can be withdrawn by exchanging it with Bank Indonesia or other parties appointed by Bank Indonesia.
Meanwhile, in order to maintain the quality of Rupiah currency in a condition that is fit for circulation in the community, Bank Indonesia conducts money destruction activities.
The money that was destroyed is money that has been revoked and
withdrawn from circulation, printed money is less than perfect and money
that is not worthy of circulation.
The activities of destroying money are regulated through procedures and
carried out by the services of third parties which are supervised by a
team of Bank Indonesia (BI)
