Bank Indonesia Role - Bank Sentral Republik Indonesia
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May 27, 2017

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 The powers of BI include revocation as legal tender, withdrawal from circulation and destruction of rupiah currency no longer valid as legal tender.

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 monitoring system.

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:

 

 

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