ROLE OF BANK INDONESIA IN PAYMENT SYSTEM
The stability of the rupiah is one of the goals of
Bank Indonesia under the mandate of Act No. 23 of 1999 concerning Bank
Indonesia. An essential part of maintaining this stability is the
regulation and management of the National Payment System (NPS). The
smooth and efficient operation of the NPS also demands robust
infrastructure. The more efficient and reliably the NPS can operate, the
more efficiently and timely the operation of time-critical monetary
policy transmission. Ultimately, the smooth and efficient operation of
monetary policy will result in stable currency value.
BI is the institution responsible for regulating and
safeguarding the smooth and efficient operation of the NPS. In its
capacity as monetary authority, the central bank also has powers to
establish and implement policies for the NPS. BI also has authority to
issue approvals and licences and conduct the oversight of the NPS.
Because of the systemically important nature of the NPS, the central
bank introduced a system for interbank settlement using the BI-Real Time
Gross Settlement (BI-RTGS) infrastructure.
Another function of BI in the NPS, for example, is
the operation of the interbank clearing system for specific payment
instruments. The central bank is also the sole authority for issuance
and circulation of cash instruments, such as rupiah banknotes. The
powers of BI include revocation as legal tender, withdrawal from
circulation and destruction of rupiah currency no longer valid as legal
With these powers, BI has also established a range of
policies for the NPS, including the types of payment instruments that
may be used in Indonesia. BI determines the standards for these payment
instruments and decides which parties may handle their issue and/or
processing. The powers of BI extend to the appointment of institutions
for operating the payment system, e.g. the clearing or funds transfer
system. The appointment may be for the entire system, or only part. The
central bank may appoint an institution to operate a settlement system.
Ultimately, BI must also establish policies on risk management,
efficiency and governance for the NPS.
Concerning cash instruments, Bank Indonesia is the
sole institution legally empowered to issue and circulate the rupiah
currency and to perform the revocation as legal tender, withdrawal from
circulation and destruction of this currency. In its capacity for
issuing and circulating legal tender, Bank Indonesia consistently seeks
to meet the needs of the public for cash fit for circulation (clean
money policy) in adequate amounts and appropriate denominations. The
clean money policy operates through Bank Indonesia’s management of
currency circulation, ranging from issuance and circulation of currency
to revocation as legal tender, withdrawal from circulation and
destruction of currency unfit for circulation.
Issuance of rupiah currency is preceded by planning
to ensure that the currency is of proper quality and public confidence
will be maintained. This includes planning for the issuance of new
banknote series, in which counterfeiting levels, intrinsic value and the
period of circulation are all taken into account. Bank Indonesia’s
planning also extends to the volume and composition of currency
denominations to be printed during the next year. Based on this
planning, Bank Indonesia arranges the supply of currency for issues of
new banknotes and coins and regular printing of existing currency issued
in the past.
Issued rupiah currency is then distributed or
circulated throughout Indonesia through the Bank Indonesia Regional
Offices. The demand for rupiah currency at each Bank Indonesia Regional
Office is based on existing stock, payment needs and exchange and
replacement of currency over a certain period. Distribution takes place
by means of land, sea and air transportation. Security is provided
through the use of adequate numbers of security escorts and an advanced
Cash is also circulated through the cash services
provided for commercial banks and the public. The cash services
available for commercial banks include receipt of cash deposits and
payout of rupiah currency. Bank Indonesia also provides the public with
immediate exchange of currency at exchange counters at all Bank
Indonesia offices or in partnership with companies offering exchange
services for small denominations.
Another currency management task performed by Bank
Indonesia involves revocation of currency as legal tender, normally for a
particular denomination of rupiah currency issued in a certain year.
The purpose of removing currency from circulation is to prevent and
minimise the circulation of counterfeit money and simplify the
composition of denominations and currency series. Rupiah currency thus
revoked as legal tender may be withdrawn from circulation by exchanging
the currency with Bank Indonesia or another party appointed by Bank
Indonesia for that purpose.
To keep rupiah currency in proper condition fit for
circulation, Bank Indonesia also performs the destruction of currency.
Destruction is performed for currency revoked as legal tender and
withdrawn from circulation, currency with printing or minting defects
and currency no longer fit for circulation. Destruction of currency is
governed by a procedure and is carried out by a third party under
supervision from a Bank Indonesia team.
The various Bank
Indonesia functions in the payment system operate within a payment
system organisational structure that manages the payment system and
currency circulation as follows: