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

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.