INDONESIA: The Magic Scissors

  • Share
  • Read Later

The black financial magic by which governments raise or lower the value of their currencies amid incantations of economic mumbo-jumbo is apt to baffle all but the most sophisticated spectators. But last week the government of "backward" Indonesia, whose guilder was badly inflated, devised an ingeniously simple new method that anyone could grasp, for letting the air out of their currency. Indonesian Finance Minister Sjafruddin Prawiranegara ordered Indonesians to get out their scissors and cut in half their paper money above five guilders.

The left halves of the banknotes will be legal tender at half their face value until April 9. Then they are to be turned in for a new currency, worth half of the old. The right halves will, "in due time," be redeemable for 3% government bonds. At the same time, the government's magical scissors also cut the Indonesians' bank accounts: half of all accounts over 400 guilders ($100), with some exceptions, will be set aside as a forced loan to the government at 3%. These operations are intended to cut sharply the effective demand for goods in Indonesia. This, in turn, will bring the Indonesian price level in line with that of other countries.

All the Indonesians needed now was scissors and some money—and a great many of them had neither.