Wednesday, July 12, 2006

Understanding foreign exchange market

Lest forget I am not a macroeconomist and always have a hard time understanding the foreign exchange market. The behavior of foreign exchange market -- especially US Dollar -- in Indonesia is even more puzzling for me. Yesterday I went to the money changer to convert my remaining US Dollar into Rupiah.

The buying rate at that time was Rp9,010/US$. However, the rate was only for new, clean, unfolded and unmarked Dollar bills. If we are to exchange US$100 bills, there are additional rules: the bills should be new (printed in 2003 or after) with serial number beginning with the letter F. It turned out that my US$100 bills were new and unmarked, but either folded or do not have the F- serial number. The exchange rate for such bills was almost 100 points lower, RP8,925/US$.

My wife and I asked for an explanation. The guys in the money changer explained that they do so -- discriminating the exchange rate -- because the banks do so as well. OK, I understand that in the money changer's perspective, the banks are the demand for the foreign currency. The banks do so because the parties to whom they are supplying Dollar bills, people who are travelling to or importing goods, demand new and clean Dollar bills. But at the end, the end consumer would be US banks (or individuals). And for sure, in the US they don't care about the quality or the serial number of the Dollar bills.

Well, avoiding forged Dollar bills should be the best reason for such behavior. But I was thinking of another explanation: in Indonesia, US Dollar bills as it is seem to give direct utility for customers. So customers gain benefit from Dollar bills not only from its traditional role -- medium of exchange and store of wealth.

(Somehow, this behavior remains me of Immannuel Kant's das ding an sich philosophy).


  1. thus the reason that when i keep cash knowing i'd need to change it, i'll keep it in pounds.

  2. actually, there's no need for you to bring cash in Jakarta... you should've transfer it to another account here in Indonesia. Preferably in Citibank account. Their ATMs can unload US dollar bills... the new ones, accepted by the exchanger's standard here...
    or, exchange your US$ bills in whichever country you transited. Singapore is the best. They even have a better rate.

    you should've asked around...

  3. Singapore Dollars work real well with Indonesian money changers. It would've been much easier if you carried them instead of US bills. And they're not fussy, too, even if it's crumpled or folded!

  4. dhani, morningdew: good info, thank you!

  5. based on my experienced the bank notes (the dollar, poundsterling, euro, etc) are treated as commodity, not as money which can be use for transaction, that's why they only take 2003 and newer edition...