Payment system in Indonesia: Recent developments and policy issues

This paper describes the existing payment system in Indonesia, which is comprised of cash and non-cash payment systems. The non-cash payment system has evolved swiftly due to improvements in information technology and the resulting transition from a paper-based to a card-based system. With the development of e-money, it is already moving toward a paperless payment system. As the monetary authority in Indonesia, Bank Indonesia is responsible for regulating and safeguarding the smooth and efficient operation of the national payment system. In 2004, the bank revised the blueprint of the system, which was originally introduced in 1995 in anticipation of efficiency-related challenges and legal implications arising from economic and technological development. Although Bank Indonesia expects to be able to provide equitable access and offer consumer protection, potential benefits arising from technological advances to the payment system, such as access in remote areas, remains an issue for small- and medium-sized enterprises. This paper examines this issue closely, with an eye to making the payment system more inclusive. It also examines the impact of the recent global financial crisis on Indonesia's payment system. The authors found that the system has remained safe, secure, and reliable despite some minor liquidity problems experienced by small banks in the last quarter of 2008 as the effects of the global crisis began to penetrate the country's financial sector.