On monetary policy, the government confines themselves into a free capital mobility regime. Since long time ago Rupiah did not act as the master in his own home. The government does not trust in the strength of own currency. The US dollar is allowed to become price benchmark in the country. The illusion is created as if Indonesia is a dollar haven and market psychology is formed to save the dollar as if it is precious jewelry. In other countries, (however), all public transaction are set in local currency.First off, the empirical questions: Do we now have to pay our lontong sayur with US dollar money only? Are our Pegawai Negeri now paid in US dollar? And, for the other country's example, if China wants to buy Treasury bills from the US, --a public transaction, yes?--can they just hand in the renminbi to the US Treasury, and the latter will happily accept it?
Suggested answers: No, no, and no.
Does it means that the exchange rate, not only against US dollar, is not important? No. It determines our balance of payment, our window to the world economy.
Second, the theoretical one. If you, a sane government, adopt a free capital mobility regime, you must have known and assumed that the interest rates ups and downs, be it domestic or international rate, hence capital inflow/outflow, do not lead to a drastic volatility of your exchange rate --hence trade.
In other words, you trust your currency to stay more or less within a reasonable span.
How do you then relate the first and third sentence of above passage?
Suggested answer: .............(don't ask me, I can't pretend to know the answer, too)