Is a currency board desirable for Indonesia?
A fully backed currency board would be costly for Indonesia to maintain. Some have argued instead that the Indonesian currency board could be launched with less than full backing of old currency issues, as long as new issues are fully backed by foreign reserves. Advocates of an Indonesian board have stressed this possibility, pointing to the successful launching of a currency board by Argentina in 1902. Nevertheless, if a board is launched with only partial backing, there will be little to distinguish it from a standard pegged exchange rate regime. While some legal restrictions on the behavior of the central bank may be introduced with the launching of the board, the board will not have the resources to fight off a speculative attack, and such an attack could bring the currency board down. Consequently, for a partially backed board to be successful, the rupiah must be pegged at a sustainable level. One problem in creating such a currency board in Indonesia is the degree of uncertainty
