CENTRAL BANK (BANK INDONESIA) & PAYMENT SYSTEM

Arranged to fulfill the tasks of Banks and Other Financial Institutions course

Supporting lecturer: Ellen Theresia S, S.E., AK., M.B.A

Arranged by:
Group 1

Rahmad Subandi 2020210464

Fania Rahmadina 2020210467

Andhika Fanny Wicaksono 2020210485

Zuhriyatil Kamilah 2020210489

S1 MANAGEMENT

UNIVERSTAS HAYAM WURUK PERBANAS SURABAYA

2021
 PREFACE

Praise be to God Almighty for the blessings of his grace, and that we were
given the opportunity to be able to complete a paper entitled “Central Bank (Bank
Indonesia and Payment System” on time. This paper is structured to fulfill the tasks
of Banks and Other Financial Institutions course.

We would like to thank those who helped us in every way, so that the paper
can be resolved. Hopefully this paper can give broader insight to the readers.

We realize that this paper is far from perfect, therefore criticism and
suggestions from all stakeholders that are built for the perfection we always hoped
this paper.

Authors

September, 17 2021

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 TABLE OF CONTENTS

PREFACE .................................................................................................................................. i
TABLE OF CONTENTS .......................................................................................................... ii
CHAPTER I .............................................................................................................................. 1
INTRODUCTION .................................................................................................................... 1
1.1 Background of the paper ........................................................................................... 1
1.2 Problem formulation ................................................................................................. 2
1.3 Purpose of the paper.................................................................................................. 2
CHAPTER II............................................................................................................................. 3
DISCUSION ............................................................................................................................. 3
2.1 Purpose of Bank Indonesia ....................................................................................... 3
2.2 Jobs of Bank Indonesia ............................................................................................. 4
2.3 Government Relations............................................................................................... 7
2.4 International relations ............................................................................................... 7
2.5 Payment system ........................................................................................................ 8
CHAPTER III ......................................................................................................................... 12
CONCLUSION ....................................................................................................................... 12
3.1 Conclusion .............................................................................................................. 12
BIBLIOGRAPHY .................................................................................................................... iii

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 CHAPTER I

INTRODUCTION

1.1 Background of the paper

The most important banking in its function is the central bank. In each country
there is only one central bank and it has branches in almost every province. The
central bank's primary function is to regulate financial problems in a country on a
large scale. In Indonesia, the central bank is occupied by the Bank Indonesia (BI).

Bank Indonesia is from De Javasche Bank N.V. which is one of the banks
owned by the Dutch government. De Javasche Bank N.V. was established at the time
of the Dutch occupation, on October 10, 1827, precisely in order to help the Dutch
government manage its finances in the Netherlands at the time. On December 6, 1951
in the No. Act. 24/1951 De Javasche Bank N.V. nationalized the Indonesian
government into a bank owned by the Indonesian government.

Bank Indonesia that occupied as an independent central bank in carrying out

its duties and authority began with the new law, No. 23/1999 on the Bank Indonesia
declared effective on May 17, 1999 and as amended by the Indonesian Republic Act
No. 6/ 2009. This law grants the independent authority to perform its duties, free
from any interference by the government or any other authority, except as provided
for in the law.

Bank Indonesia has the right to carry out any task and authority as stipulated
in these laws. The outside world is forbidden to interfere with the performance of the
Bank Indonesia's duties. Bank Indonesia also has an obligation to refuse or ignore
intervention from any side. Such special status is necessary for the Bank Indonesia to
carry out its role and function as a monetary authority effectively.

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1.2 Problem formulation
1. What is the purpose of Bank Indonesia as Central Bank?
2. What is the job of Bank Indonesia as Central Bank?
3. How is the relationship between Bank Indonesia and the government?
4. How is the relationship between Bank Indonesia and the international
community?
5. How is the payment system in Indonesia?

1.3 Purpose of the paper

1. Knowing the purpose of Bank Indonesia as a Central Bank
2. Knowing the job of Bank Indonesia as a Central Bank
3. Knowing the relation between Bank Indonesia and the government
4. Knowing the relation between Bank Indonesia and the international
community
5. Knowing the payment system in Indonesia

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 CHAPTER II

DISCUSION

2.1 Purpose of Bank Indonesia

The objective of Bank Indonesia is expressly stated in Indonesian Law No. 23
of 1999 Article 3 Article 7 that the purpose of Bank Indonesia is to achieve and
maintain the stability of the rupiah value which is the single objective of Bank
Indonesia. The stability of the rupiah value in question is the stability of the value of
rupiah goods and services, which if a currency is unstable such as one of them is the
occurrence of inflation.

By looking at the rate of inflation (continuous increase) BI also maintains the

stability of the rupiah value of foreign currency(exchange rate).stability is very
important to support development and improve the welfare of the community,
continuous price increases will decrease people's purchasing power, especially fixed
people's income, so that the level of welfare decreases, especially goods and services
imported from abroad more than rupiah exchange rate instability resulting in
economic actors having difficulty preparing business planning in the end resulting in
a bad economy on the welfare of the community.

With a stable rupiah value, there will be many benefits that will be obtained
first to support sustainable economic development and improve the welfare of the
people.

The purpose of rupiah stability desired by Bank Indonesia are:

1. Stability of rupiah value of goods and services that can be measured by or

reflected in the development of inflation rate.

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 2. Stability of rupiah value against other countries' currencies. This can be
measured by or reflected in the development of the Rupiah exchange rate
against other countries' currencies.

Formulation of Bank Indonesia's objectives in the form of this single objective

intended to clarify the goals to be achieved and the limits. Responsibilities that must
be carried out by Bank Indonesia. The formulation of Bank Indonesia's objectives in
the form of a single objective is intended to clarify the objectives to be achieved and
the limitations of responsibilities that must be shouldered by Bank Indonesia. This is
in contrast to the objective of Bank Indonesia in Law No. 13 of 1968 on Central
Banks which is formulated in general, namely "improving the standard of living of
the people".

Formulation doubts have implications including Bank Indonesia's role as an

unclear and unfocused and even contradictory authority because between the task of
maintaining rupiah stability and the task of encouraging growth often cannot go hand
in hand. In addition, the vagueness of the goal also makes the responsibility for the
policies taken unclear.

2.2 Jobs of Bank Indonesia

As a central bank, the Bank Indonesia has one single purpose and three main
pillars as its tasks.

The single purpose of the Bank Indonesia is to achieve and maintain the stability
of its rupiah value. The stability of this rupiah has two aspects, namely the stability of
currency against goods and services, and stability against the currency of another
country.

The first aspect is reflected in the rate of inflation, while the second aspect is
reflected in the development of the rupiah exchange rate against the other country's

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currencies. This single purpose settlement is intended to clarify the target to be
achieved by the Bank Indonesia and its limits of responsibility. Therefore, the
performance of this Bank Indonesia will be measured by the government and the
people.

In pursuing the Bank Indonesia's single purpose of maintaining a stable rupiah

value, the Bank Indonesia has three main pillars which are also its scope of duty. The
three main pillars are contained in Law No. 23 of 1999 on the Bank Indonesia as the
Central Bank.

Bank Indonesia is supported by three pillars that have a duty to be run by the
Bank Indonesia in order to achieve and maintain a stable value.

1. Establish and implement monetary policy

In order to carry out the task, the Bank Indonesia is authorized:
a. Set the monetary targets by giving the inflation targets it set.
b. Doing monetary control using unlimited ways on:
• Open market operations in the money market, both rupiah and foreign
currency (valas)
• The discounting level setting
• Minimum mandatory reserve setting
• Credit or financing arrangements
c. Giving credit or financing based on the syariah principle, at the latest
ninety days to the bank to overcome the difficulties of short-term
financing the bank concerned
d. Implement exchange rate policy based on a set exchange rate system
e. Manage the reserve visa
f. Conduct periodic or periodic surveys of macro and micro-enterprises

2. Set up and maintain smooth payment system

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 In order to carry out the task, the Bank Indonesia is authorized:
a. Implement and grant approval and authorization to operate the payment
system
b. Mandatory service provider payment system to file activity reports
c. Set up the use of payment instruments
d. Arrange the interbank clearing system in both rupiah and foreign
currencies
e. Organizing the final settlement of the interbank payment transaction
f. Setting the kind, the price, the money, the items to be issued, the material
used and the date began to act as a legitimate payment instrument
g. Exposing and circulating money in cash and withdrawing it, pulling it, and
disposing of money from the market, including giving it a replacement of
the same value.

3. Maintaining the financial system stable

In this case the bank is a financial intermediary. Central banks play a
role as the ultimate source of loans to banks that are experiencing liquidity
difficulties, or known as lender of the last resort (LoLR). Besides, the central
bank also has a role in controlling the monetary system. From this function, it
becomes even clearer that the central bank also plays a role in the
development of a healthy credit system.
Other tasks that the Bank Indonesia has undertaken are, making and
supervising regulations for all banks in Indonesia, conducting research and
also keeping state cash and providing financial assistance to banks in
Indonesia that are in crisis.

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2.3 Government Relations
The relationship between Bank Indonesia and the government as set forth in Act
No. 23 of 1999 is as follows:

a. Act as government cash holder

b. For and on behalf of the government, Bank Indonesia can receive foreign
loans
c. The government is required to ask for an opinion on Bank Indonesia and or
invite Bank Indonesia to a cabinet meeting that discusses economic issues
d. Provide opinions and considerations to the government regarding the draft
state budget for revenues and expenditures as well as other policies
e. Bank Indonesia can assist the issuance of government bonds issued by the
government
f. Bank Indonesia is prohibited from providing credit to the government

2.4 International relations

In the event that it is required that the members of the International and or
multilateral institutions are States, then Bank Indonesia may act for and on behalf of
the Republic of Indonesia as a member.

• BI can work with:

a. Central Banks of other countries.
b. International Organizations and Institutions

Bank Indonesia establishes cooperative relationships with international

institutions that are needed in order to support the smooth implementation of the tasks
of Bank Indonesia and the government related to the economy, monetary and
banking.

• BI establishes international cooperation covering the fields of:

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 1. Joint investment for the stability of the foreign exchange market
2. Settlement of transnational transactions
3. Correspondence relation
4. Training / research in the field of monetary and payment systems
5. Exchange of information on matters related to the duties of the central
bank.

Bank Indonesia's membership in several international institutions and forums

on behalf of Bank Indonesia itself, one of which is in The South East Asian Central
Banks Research and Training Centre (SEACEN Centre).

2.5 Payment system

1. Payment system in Indonesia

The Payment System is a system that includes a set of rules, institutions, and
mechanisms used to carry out the transfer of funds, in order to fulfill an obligation
arising from an economic activity. The Payment System was born at the same time as
the concept of 'money' as a medium of change or intermediary in goods, services and
financial transactions. In principle, the payment system has three processing stages,
namely authorization, clearing, and settlement.

2. Payment System Evolution

The Payment System continues to evolve following the evolution of money

with 3 driving elements, namely technological innovation & business models,
community traditions, and authority policies. The beginning of the means of payment
is a barter system between goods traded. It's just that problems arise when two people
who want to exchange do not agree on the value of the exchange or one of the parties
does not really need the goods to be exchanged.

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 To overcome this, humans developed commodity money. Commodities here
are basic goods that almost everyone needs, for example salt, tea, tobacco, to grains.
Furthermore, primitive money began to be used around 1200 BC and was in the form
of shells or other animal shells. Paper money began to be used as a means of
payment. Sweden was the first country in continental Europe to use paper money in
1661 after a paper mill was founded in 1150 in Spain.

3. Cash Payment System

Broadly speaking, the payment system is divided into two, namely cash payment
systems and non-cash payment systems. The basic difference lies in the instruments
used. The cash payment system uses currency (paper money and coins) as a means of
payment.

4. Cashless Payment System

In the non-cash payment system, the instruments used are Card-Based Payment
Instruments (APMK), cheques, transfer form, debit notes, and electronic money
(card-based and server-based). The non-cash payment system covers 2 types of
transactions, namely wholesale transactions and retail transactions.

Large value transactions have the characteristics of transactions that are important
and urgent, including inter-bank transactions, transactions on financial markets or
transactions with a ticket size value of IDR 1 billion. The infrastructure used to
process this transaction activity is the Bank Indonesia Real Time Gross Settlement
(BI-RTGS) and the Bank Indonesia Scripless Securities Settlement System (BI-
SSSS). Meanwhile, retail transactions include transactions between individuals with a
ticket size value of < Rp 1 billion with characteristics of small value and relatively
high frequency. The infrastructure used to process these transaction activities is the
Bank Indonesia National Clearing System (SKNBI).

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5. The development of the current payment system

The development of payment systems is not separated from technological

infrastructure innovation, so the development of payment systems in Indonesia today
leads to efforts to strengthen infrastructure and develop systems with obstacles to the
advancement of information technology. Even now the role of an institution other
than the bank (LSB) in the financing of the payment system is becoming more and
more real with more who cooperate with banking as a network provider and do not
cover the possibility of publishing such payment instruments.

Bank Indonesia as the organizer of the transaction through Bank Indonesia Real
Time Gross Settlement (BI-RTGS), the Cliring System of the National Bank
Indonesia (SKNBI), and the Bank Indonesia's Scripless Securities Settlement System
(BI-SSSS) also continue to strive to improve and update the mechanisms in place to
always be efficient, safe, and in line with technological developments and the needs
of the ever-evolving society.

The strengthening of the infrastructure seen by the Bank Indonesia began

operating a settlement-versus-payment (PvP) service on the Indonesian Real Time
Gross Settlement (RTGS). Settlement services from foreign currency trading,
especially the United States Dollar (USD) against Indonesian Rupiah (IDR) are
performed simultaneously. It's to avoid the risk of a settlement failure when the time
of the exchange of currency. Besides, with the tendency of future payment
transactions that are increasingly limitless, of course, there will be higher liquidity
needs for economic actors, including the emergence of various derivatives of global
financial products and the disappearance of regional economic boundaries initiated
through the MEA and other regional cooperation.

Besides PvP, strengthening the infrastructure is the unification of the BI-SSSS

certificate settlement function into the integration of the payment and settlement
system function at the Bank Indonesia. Such unification is intended to increase the

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efficiency of the pooling of fund settlement activities and valuables along with
infrastructure and human resources that can ultimately improve the quality of Bank
Indonesia service to related stakeholders.

The development of the retail payment industry is also directed at the creation of
interoperability between systems used to create the security and efficiency of the
payment system. Behind the back of the security issue transacting in using
ATM/Debit cards, the use of chip technology on ATM/Debit cards is believed to
minimize the origin of the crime.

6. Development of payment system policies

Payment system policy and development has been shifting since the last decade,
from infrastructure development to payment system operations directly operated by
the Bank Indonesia to industrial setup and establishment of payment systems,
especially retail payment systems that are not independent of the impact of the
digitalization current.

In order to support economic activity, the Bank Indonesia is committed to

providing Rupiah money throughout Indonesia according to the needs of the society.
The distribution of money continues to be strengthened so that the economy can
continue to grow at a steady pace. Cash services are also being increased, including
accelerating the withdrawal of bad money. Opening of the case is a priority for areas
with limited access and distance to the Bank Indonesia's representative office. The
primary cash services are also carried out in times of emergency or disaster so that
economic activity can run.

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 CHAPTER III

CONCLUSION

3.1 Conclusion
Bank Indonesia as an independent central bank in carrying out its duties and
authority began with the introduction of Law No. 23/1999 on the Bank Indonesia.
Bank Indonesia aims to achieve and maintain a stable rupee value. As a monetary
authority, Bank Indonesia's task is not only to maintain monetary stability, but also
financial stability (banking and payment systems).

Development of payment system policies Payment system policy and

development has been shifting since the last decade, from infrastructure development
to payment system operations directly operated by the Bank Indonesia to industrial
setup and establishment of payment systems, especially retail payment systems that
are not independent of the impact of the digitalization current.

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 BIBLIOGRAPHY

www.bi.go.id
(Kasmir, 2018)

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