Last Exam of Monetary

Name : Librania Septa Monica Ambar Susanto

Class : Eco 20 I
ID : 20081324044

1. The flow of digitalization is entering Indonesia rapidly, as well as its potential in

the future. This trend of digitization affects all aspects of the economy, changes the
pattern of transactions in society, both individuals and corporations, and disrupts
conventional functions, including the financial sector. With this description, the trend
of economic and financial digitization in Indonesia presents both opportunities and
risks. Mention the opportunities and risks of digital payments in Indonesia!
Answer:
 Digital payment opportunities in Indonesia are huge:
- The budget for printing costs is getting smaller
where the use of paper money will be minimal in the midst of the rapid development of
digital payment instruments.
- Payments become very young, effective and efficient
The application of non-cash transactions continues to grow as a logical consequence of the
Indonesian millennial generation who prefer transactions that are efficient, fast, and easy.
- It is more popular with young people, thus increasing business skills
The presence of electronic money is a necessity, considering that the demographic
composition of Indonesia is currently dominated by generations Y and Z.
Based on these conditions, Indonesia is considered to have the potential to develop a non-
cash-based mass payment system. The use of non-cash payment instruments also encourages
the growth of financial inclusion and literacy. At least, it can increase the number of account
holders at the bank, especially the younger generation and MSME players
 Digital Payment Challenge:
Currently, digital payment instruments are growing in many countries, including Indonesia.
The use of digital money in payment systems has played an important role in facilitating and
increasing economic transactions. The market responded to this increase through the
enthusiasm of financial industry players to issue electronic payment instruments.
As of 2019, Bank Indonesia has granted permission for 42 companies that issue electronic
money. The rapid growth in the number of electronic money issuers indicates the potential of
the Indonesian market is quite large and the public is in dire need of a fast, efficient, and up-
to-date payment system.
To realize the progress of a conducive digital economy, Bank Indonesia has issued the
Indonesia Payment System Blueprint 2025. Bank Indonesia has prepared a vision and
roadmap that will form the basis for policies that will be pursued by Bank Indonesia in the
next 5 years.

In implementing the payment system blueprint, several important points need to be

considered in the development of a digital payment system in Indonesia.
-First, the cashless payment system relies on a reliable communication network system. If
there is a disturbance in the non-cash payment system, the transaction will experience
disruption which has an impact on transaction failure, uncertainty over the success of the
transaction and even duplication of transactions.
-This failure can have an effect of distrust for consumers on the reliability of digital payment
systems. Second, despite the rapid development of technology, many Indonesians still prefer
to make payments using cash. This condition is driven by the culture and background of the
Indonesian people, most of whom are still untouched by banking products and some even feel
uncomfortable with payment technology which is full of security issues, and makes cash the
prima donna in every payment transaction activity.
-Third, related to increasing public confidence in using non-cash money, it is necessary to
guarantee consumer protection. All payment system service providers must provide certainty
for consumers to receive correct information regarding the benefits and risks and costs of
using digital money.
-Fourth, cash transactions have convenience because they can be done at all commercial
outlets without additional fees. In some non-cash transactions, merchants often charge a
transaction fee. To top up digital money account balances, there are operators who charge
additional fees.
-Fifth, understanding the different digital payment applications between operators can cause
confusion for users, especially for groups of people who are still difficult to adapt to
technology. In contrast to cash which is very easy to use, the use of digital money requires
users to have media (mobile phones, cards, applications, etc.) in order to make transactions.

2. Monetary standard is a monetary system based on the standard value of money in a country.
Monetary standards can also be defined as the basic unit of money in the monetary system that
functions as a means of payment, measuring value, and controlling the amount of money in
circulation. Mention and explain monetary standards that have been used by Indonesia and
internationally!

Answer :

Monetary standard is a monetary system based on the standard value of money in a country.
Monetary standards can also be defined as the basic unit of money in the monetary system that
functions as a means of payment, measuring value, and controlling the amount of money in
circulation. Monetary standards or known as money standards can be interpreted as standards used
by the monetary authority, in this case the central bank, to issue and regulate the circulation of
money.

Monetary standards that have been used by Indonesia :

1. Gold standard

In this standard, the base unit of currency value is determined by the amount and weight of gold.
The gold standard is the basis for comparison of the exchange rates of various currencies.
A country that uses the gold standard will maintain the unitary value of its money with the weight of
gold. In a sense, the central bank must keep a stock of gold and every printing of money is a
guarantee for the country's economy.
To maintain the unified value of money with the gold standard, the following conditions must be
met:
The government must always be willing to sell and buy gold in unlimited quantities at a price
determined by law.
The government must give permission to everyone to smelt, make, and buy and sell gold currency.

2. Paper standard

Paper standard is a financial system that regulates paper money as a legal and unrestricted medium
of exchange or payment. However, paper money cannot be exchanged for gold and silver in bank
circulation in Indonesia.In this standard, the government does not need to maintain the unified
value of money issued with metal values, such as gold or silver. The government also has no
obligation to buy or sell gold or silver at a certain price.Under this standard, the central bank can
issue money to a certain extent without having to pay attention to gold guarantees. Currently, many
countries have used paper standards as monetary standards, including Indonesia.

Monetary standards that have been used by internationally:

1. Bimetallism
A double standard in free currency used for both gold and silver.
United Kingdom used until 1816,United States 1792 – 1873,French used until 1878
China, India, Germany, and the Netherlands use the silver standard.
Gresham's law = the exchange ratio between two metals is officially (is) fixed, and only abundant
metal is used as money.

2. Classic Gold Standard

According to the classical gold standard (1875 – 1914), the exchange rate between two currencies is
determined by the gold content of the currency. Most countries started this standard when World
War I broke out. London is the center of the international financial system which reflects the
progress of the British economy

3. Interwar period
The classical gold standard ended in the post-World War I period, when the losing countries,
especially Germany, Austria, Hungary, Poland, and Russia, experienced hyperinflation.
Example: Germany experienced a price index increase of 1 trillion times than it was before the war.
Fluctuations in currency values in the 1920s led many countries to implement all-out depreciation
policies in order to make a profit on global export markets.

The main objective of International Monetary Standard is Promote international monetary

cooperation; Facilitate the expansion and growth of balanced international trade; Promote exchange
rate stability; Assist in the establishment of a multilateral payment system.
3. In a country, inflation is an economic problem that often occurs and is a scourge that must be
controlled immediately so that the value of inflation does not soar. Explain and give examples of
inflation and deflation. Does inflation need to be completely eradicated in a country to 0%?

Answer:

1. Inflation

Inflation can be interpreted as an increase in the price of goods and services in general and
continuously within a certain period of time. Deflation is the opposite of inflation, which is a general
and continuous decline in the price of goods. Inflation calculation is carried out by the Central
Statistics Agency (BPS), link to SEKI-IHK metadata. An increase in the price of one or two goods alone
cannot be called inflation unless the increase extends (or causes price increases) to other goods
In Indonesia, the CPI inflation disaggregation is grouped into:
- Core Inflation, namely the inflation component that tends to be persistent (persistent component)
in the movement of inflation and is influenced by fundamental factors, such as:
Demand-supply interactions.
External environment: exchange rates, international commodity prices, trading partner inflation.
Inflation expectations from traders and consumers.
-Non-core inflation, namely the inflation component that tends to be highly volatile because it is
influenced by other than fundamental factors. The non-core inflation components consist of:
Volatile Food Inflation: Inflation is dominantly influenced by shocks in the foodstuffs category, such
as harvests, natural disturbances, or developments in domestic food commodity prices and
international food commodity prices.
Inflation Components of Prices regulated by the Government (Administered Prices): Inflation is
predominantly influenced by shocks in the form of government price policies, such as subsidized fuel
prices, electricity tariffs, transportation fares, etc.
Inflation Determinants
Inflation arises due to pressure from the supply side (cost push inflation), from the demand side
(demand pull inflation), and from inflation expectations. The factors for the occurrence of cost push
inflation can be caused by the depreciation of the exchange rate, the impact of foreign inflation,
especially trading partner countries, the increase in commodity prices regulated by the government
(Administered Price), and negative supply shocks due to natural disasters and distribution
disruptions. The factor causing demand pull inflation is the high demand for goods and services
relative to their availability. In the macroeconomic context, this condition is described by real output
that exceeds its potential output or total demand (aggregate demand) is greater than the capacity of
the economy. Meanwhile, the inflation expectation factor is influenced by the behavior of the public
and economic actors in using the expected inflation rate in their economic activity decisions. The
inflation expectation can be adaptive or forward looking.
2. Deflation

Deflation is when consumer and asset prices decrease over time, and purchasing power increases.
Essentially, you can buy more goods or services tomorrow with the same amount of money you have
today. This is the mirror image of inflation, which is the gradual increase in prices across the
economy.

Does inflation need to be completely eradicated in a country to 0%?

  Not completely 0% because inflation is still needed for price stability. what is the
importance?

The Importance of Price Stability

Low and stable inflation is a prerequisite for sustainable economic growth which will ultimately
provide benefits for improving people's welfare. The importance of controlling inflation is based on
the consideration that high and unstable inflation has a negative impact on the socio-economic
conditions of the community.
First, high inflation will cause the real income of the community to continue to fall so that the
standard of living of the people falls and ultimately makes everyone, especially the poor, poorer.
Second, unstable inflation will create uncertainty for economic actors in making decisions. Empirical
experience shows that unstable inflation will complicate people's decisions in consumption,
investment, and production, which in turn will reduce economic growth.
Third, the domestic inflation rate which is higher than the inflation rate in neighboring countries
makes the real domestic interest rate uncompetitive so that it can put pressure on the value of the
Rupiah.
Fourth, the importance of price stability in relation to SSK (reference).
Inflation Target

Through the mandate contained in the Law on Bank Indonesia, Bank Indonesia's goal is to achieve
and maintain a stable Rupiah value. The stability of the value of the Rupiah contains two aspects,
namely the stability of the value of the currency against goods and services, and the stability of the
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
currencies.The formulation of this single objective is intended to clarify the targets to be achieved by
Bank Indonesia and the limits of its responsibilities. In this way, whether or not Bank Indonesia's
goals have been achieved can be measured easily. In an effort to achieve its objectives, Bank
Indonesia realizes that the achievement of economic growth and inflation control needs to be
aligned to achieve optimal and sustainable results in the long term.

4. The theory of monetary economics as we have studied together has several theories from classical
theories to modern theories. The theory continues to be refined by monetary economists to suit the
times. In your opinion, which theory is the most relevant to be used to solve the current monetary
economic problems? Explain the advantages and disadvantages of classical monetary economic
theory to modern theory!

Answer:

5. Explain the relationship between interest rates and inflation in an economy! Why inflation and
high interest rates make people poorer, explain!