Last week, Indonesian Rupiah was 9550/USD, then Monday opening October 6th, Rupiah declined significantly at 9600/USD. Yesterday is 9700/USD and now is 9625/USD (data taken from klikbca.com). Others currencies are also attacked by the American crisis storm. Why the storm is too scary?
To answer the question why Rupiah declined significantly, my friend put nice analysis and here it is. The analysis is based to economic theory and analysis.
When American down to financial crisis, mortgage and bad credit, it means America is going to recession. Recession means lower demand and supply from American, the impact is Indonesian export also declined because lower demand from America. This case also attack others exporter countries. Supply raises and demand is fixing or lower, so production sectors react through declined their output. Over supply created and puss higher inflation (inflation because over supply). Read more »
Last two week, when closing weekend, Rupiah was around Rp.9250 per USD. But last weekend closing time, Rupiah had fallen into Rp.9600 per USD. And now Rupiah is 9450 per USD (taken from KlikBca.com).
Not only Rupiah declined significantly against USD, major currencies EURO, POUND, YEN Japan and Swiss Franc also declined against USD. Let us see the fact. Why USD flies the flag. What’s going on with USD?
We look the past, 4 months before when Credit Crunch attacked American Financial Market and Hot Money from Japan attacked Indonesia and Pound, and USD had fallen to the worst and makes its new record low against EURO and Pound.
Economic Theory can explain this situation. Trade-off between two countries to make economic theory goes well. If Japan YEN won against Dollar, it means Japanese spend less YEN to get $1. In International trade (between Japan and America), Japanese prefer American Product because of cheaper, so Japanese will consume (import) American products.
In other hand, declined on YEN makes American gets more YEN for Trade. American gets surplus (because Japanese products is expensive) and Japanese gets deficit. If the condition goes in long term, Americans will hold Many YEN and Japanese has loss their YEN.
Inside America, Americans have more money and as result Inflation raises there. Inflation rises because of Higher of money supply. To avoid it problems, construction money supply from FED is taken, Producer cut their Product and Surplus (Over supply) must be used to buy foreign products, so Americans start to buy Japanese product to put the inflation down.
In my opinion, the theory works well so far if there are no external error destroys the theory. Economic theory comes from assumption so people (even the economists) believe that Economic theory is very restrict and far from realize. But generally we will get some information from the theory that Declined USD in the past and the rise USD in present tries to inform us that Appreciation or Depreciation, Inflation or Deflation, Recession or Growth is a cycle of life. Sometimes you are down and sometimes you are the top.
The economic theory is disturbed by external error, let us say them Broker or Investor in Stock and Money Market. They are destroyer. Declined on USD in generally is a process, but Brokers making it run faster and the panic is spread to all sectors.
Indonesian Reserve Bank (Bank Indonesia) had taken some necessary actions to keep the Rupiah around upper than Rp.9500 per USD. But Bank Indonesia couldn’t win against the panic cause by Brokers. When Rupiah declined on USD, who (which) people gain the benefits? Declined on Foreign Currencies makes Exporters gain more Rupiahs, especially Oil and Gas, Local product (higher than 75 percent importer material) such as faming, wood, handicraft and more. But in modern world, Many people are depended on importation products so when Rupiah declines on USD, Cities people go to crazy. Real money also decline.
