Bank Indonesia: Definition, History and Status

Bittime - Bank Indonesia (BI) is the central bank of the Republic of Indonesia which has the main responsibility for maintaining the stability of the value of the rupiah as well as the stability of the national financial and payments system. As an independent institution, BI plays an important role in monetary policy and supervision of the financial sector to support sustainable economic growth.

History of Bank Indonesia

The forerunner of Bank Indonesia began with the establishment of De Javasche Bank (DJB) by the Dutch colonial government in 1828. DJB functioned as a circulation bank responsible for printing and circulating the Gulden currency in the Dutch East Indies region.

During the Japanese occupation in 1942, DJB was liquidated and replaced by Nanpo Kaihatsu Ginko (NKG) as a circulation bank. After Indonesia became independent in 1945, there was competition between DJB which was restored by the Dutch through the Netherlands Indies Civil Administration (NICA) and Bank Negara Indonesia (BNI) which was formed by the Indonesian government to issue Oeang Republik Indonesia (ORI). This competition created dualism in the banking system until the recognition of Indonesian sovereignty in 1949.

In 1951, the Indonesian government began to take steps to nationalize DJB and finally, through Law Number 11 of 1953, Bank Indonesia was officially established as the central bank of the Republic of Indonesia on July 1 1953. Apart from functioning as a circulation bank, BI also acts as a commercial bank that provides credit.

The 1997 economic crisis brought major changes to Bank Indonesia. In 1999, Law Number 23 of 1999 was passed, establishing BI as an independent institution with the main objective of maintaining the stability of the value of the rupiah and no longer acting as a development agent.

In line with developments, in 2011, the banking supervision function that previously belonged to BI was transferred to the Financial Services Authority (OJK) based on Law Number 21 of 2011.

Also read: Still Saving in a Piggy Bank? These are the risks and drawbacks!

Duties and Authorities of Bank Indonesia

As a central bank, BI has one main goal, namely maintaining the stability of the rupiah value. This stability includes stability in prices of goods and services (inflation) as well as stability in foreign currencies (exchange rate).

To achieve this goal, Bank Indonesia carries out three main tasks:

1. Establish and implement monetary policy to control inflation and economic stability.
2. Organize and maintain the smoothness of the payment system, including cash and non-cash transactions.
3. Maintain financial system stability so that the financial sector remains healthy and does not experience a crisis.

Apart from that, BI also has several authorities, such as setting monetary policy, regulating money circulation, and acting as lender of last resort in maintaining the stability of the banking system.

Also read: Economic Development: Positive and Negative Impacts

Status and Position of Bank Indonesia

Bank Indonesia is an independent state institution as regulated in Law Number 23 of 1999 which has been updated with Law Number 4 of 2023. As an independent institution, BI is free from intervention by the government or other parties in carrying out its duties, except in matters regulated by law.

Apart from having status as an independent state institution, Bank Indonesia also has status as a legal entity. As a public legal entity, BI has the authority to establish regulations that bind the public. As a civil legal entity, BI has the authority to act on its own behalf in various transactions and legal actions.

In carrying out its functions, BI is led by a Board of Governors consisting of the Governor, Senior Deputy Governors, and several Deputy Governors who are appointed by the President with the approval of the DPR.

Conclusion

As the central bank of the Republic of Indonesia, Bank Indonesia has a vital role in maintaining national economic stability through monetary policy, supervision of the financial system, and regulation of the payment system. With its status as an independent institution, BI has full authority to carry out its duties to ensure healthy and sustainable economic growth.

FAQ

What is the difference between Bank Indonesia and commercial banks?

Bank Indonesia functions as a central bank that regulates monetary policy and maintains economic stability, while commercial banks focus on banking services for the public such as savings, credit and investment.

Can Bank Indonesia provide loans to the public?

No, Bank Indonesia does not provide direct loans to individuals or companies. Its function is more about supervising the financial system and regulating monetary policy.

Why is Bank Indonesia called an independent institution?

Bank Indonesia is independent so that it can carry out monetary policy without interference from other parties, so that it is more effective in maintaining economic stability and the value of the rupiah.

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Reference

Between News, Getting to know Bank Indonesia: history, functions and position, accessed March 12, 2025.

Author: MF