FUNCTION AND ROLE OF CENTRAL BANK

IN ECONOMIC SISTEM PAY

BANK DAN LEMBAGA KE UANGAN LAINYA
(BLKL)
ASSIGMENT

OLEH,

FAUZAN KARIM
B1B119112
INTERNATIONAL CLASS

MANAGEMENT
FACULTY ECNOMIC AND BUSSINES
HALU OLEO UNIVERSITY
KENDARI
2020
A. Brief History of Bank Indonesia

In 1828, in the region of Handia Belanda (Nusantara) a bank named De Javache Bank
had been domiciled in Batavia (now Jakarta). the bank was founded by the Dutch
government of Handia. In the beginning the bank was not government-owned, but all its
leaders were appointed by the government. The DJB bank was established with the task of
improving the economy of the Dutch government. In accordance with the decisions of the
Round Table Conference (KMB) in 1949, the Netherlands recognized the sovereignty of the
Republic of Indonesia as part of the Republic of Indonesia United States (RIS), and made the
function of the central bank that was still entrusted to De Javache Bank (DJB) The RIS
government did not last long, because on August 17, 1950 the RIS government was
dissolved, then Indonesia then returned to the Unitary State of the Republic of Indonesia
(NKRI) At that time, the position of De Javache Bank remained as a circulation bank, but
with the end of the KMB agreement, it turned out to have ignited the national spirit that was
exposed through the national economic movement of the Indonesian economy. uk advance
the Indonesian economy. Since the enactment of the Basic Law of Bank Indonesia on July 1,
1953, the Indonesian people have had a central bank institution named Bank Indonesia which
was formerly the DJB Bank.

B. Central Bank Activities

In 1968, the Central Bank Law was enacted which established the position and duties
of Bank Indonesia as the central bank, whose functions differed from commercial banks. In
addition to the three main tasks of the central bank, Bank Indonesia also participated in
assisting the Government to become an agent of development to encourage smooth
production, development, and broaden employment opportunities in order to improve the
standard of living of the people. In 2004, the Bank Indonesia Law was enacted by focusing
on the main aspects related to the implementation of the tasks and authority of Bank
Indonesia, not excluding the problem of strengthening leadership (governance).
Furthermore, the Government also enacted Government Regulation in Lieu of Law No. 2 of
2008 which addresses the second amendment to Law No. 23 of 1999 concerning Bank
Indonesia, which functions as an effort to improve national banking resilience in overcoming
the global crisis through increasing banking access to Faslıtas Short-term Funding from
Bank Indonesia.
C. Bank Indonesia's goals and duties

Bank Indonesia are different from Law No. 13 of 1968 concerning the central bank
that did not formulate the purpose of Bank Indonesia, in the BI Law firmly stated in article 7
that the purpose of Bank Indonesia was to achieve and maintain the stability of the rupiah
value which was the Single Objective Bank Indonesia. The stability of the value of the rupiah
in question is the stability of the value of the rupiah against goods and services that are
reflected in the development of inflation and stability against other countries that are reflected
in the development of the rupiah exchange rate against other country currencies. The
formulation of Bank Indonesia's objectives in the form of single objective is intended to
clarify the target to be achieved and the limits of responsibility that must be borne by Bank
Indonesia. This is different from Bank Indonesia's purpose in Law No. 13 of 1968 concerning
the central bank which is generally formulated, namely "improving the level of living of the
people". The impurity of the formulation caused implications, among others, the role of Bank
Indonesia as an unclear and non-focused authority and even conflict arises because between
the task of maintaining the stability of the rupiah value with the task of encouraging growth
often cannot run together. In addition, the unconference of the goal also makes the
responsibility for the policy taken is not clear. Bank Indonesia's duty in order to achieve the
goals to achieve and maintain the stability of the value of the rupiah, Bank Indonesia is
supported by three pillars which are 3 (three) major fields of Bank Indonesia's duties, namely
establishing and implementing monetary policy, regulating and maintaining the smooth
payment system, and regulating and supervising banks. In order for the purpose of achieving
and maintaining the stability of the rupiah value can be achieved effectively and efficiently,
then the three tasks must be integrated.

Bank Indonesia Duties In order to achieve the goal of achieving and maintaining the stability
of the rupiah value, Bank Indonesia is supported by three pillars which are the 3 (three) main
areas of the tasks of Bank Indonesia namely setting and implementing monetary policy,
regulating and maintaining the smoothness of the payment system, and regulating and
supervising bank. In order to achieve and maintain the stability of the rupiah's value
effectively and efficiently, the three tasks must be integrated.
 C.1 Assigment of Determining and Implementing Monetary policy

To achieve the objectives of Bank Indonesia in maintaining the stability of the rupiah,
Article 10 of the BI Law confirms that Bank Indonesia has the authority to implement
monetary policy through setting monetary targets by paying attention to the inflation rate
target and carrying out monetary control through various means including:

1. open market operations on the money market both rupiah and foreign currencies;

2. determination of the discount rate;

3. determination of minimum mandatory reserves; and

4. credit or financing arrangements.

The methods of monetary control can be implemented also based on sharia principles. The
inflation rate target is set by Bank Indonesia on a calendar year basis with pay attention to
macroeconomic developments and prospects. Determination of the rate is mainly done by
considering price developments that are directly affected by monetary policy. The inflation
rate target set by Bank Indonesia may differ from the inflation rate assumptions made by the
government in the context of preparing the State Revenue and Expenditure Budget which is
based on the fiscal year.

C.2 The Role of Bank Indonesia as the Lender of the Last Resort

In an effort to increase the effectiveness of monetary control, Bank Indonesia also has
a lender of the last resort function (Art. 11) which allows Bank Indonesia to help with short-
term funding difficulties encountered. In this case, Bank Indonesia only help to overcome
short-term funding difficulties because they are caused by credit risk or financing risk based
on sharia principles, management risk, or market risk. To prevent the misuse of the intended
credit or financing, which in turn will be able to disrupt the effectiveness of monetary control,
lending or financing based on sharia principles is limited for a maximum of 90 days. In
addition, loans or financing based on sharia principles must be guaranteed to be of high
quality and easily disbursed. What is intended by high quality collateral that is easily
disbursed includes securities and / or bills issued by the government or other legal entities
that have a high rating based on the results of the rating agency that is competent and easily
disbursed at any time. If a credit or financing based on sharia principles cannot be repaid at
maturity, Bank Indonesia has the full right that is controlled by it.

C.2 Excange Rate Plicy

Article 12 The Bank Law stipulates an exchange rate policy based on a fixed
exchange rate. The determination of the exchange rate is carried out by the government in
the form of a Presidential Decree based on the proposal of Bank Indonesia. The authority of
Bank Indonesia in implementing this exchange rate policy can be in the form of:

1. in the fixed exchange rate system in the form of devaluation or revaluation of foreign
currencies:

2. in the floating exchange rate system in the form of market intervention; or

3. in the controlled floating exchange rate in the form of determining the daily exchange rate
of the intervention band.

C.3 Authority in Managing Foreign Reserves In

Article 13 of the Bank Indonesia Law it is formulated that Bank Indonesia manages
foreign reserves. In the context of managing foreign exchange reserves, Bank Indonesia
implements various types of foreign exchange and can receive foreign loans. What is meant
by backup State foreign exchange reserves controlled by Bank Indonesia, which is recorded
at Bank Indonesia, among other things, in the form of gold, foreign paper money, and other
bills in foreign currencies to foreign parties that can be used as a home payment tool.
Management of foreign exchange reserves by Bank Indonesia is carried out through various
types of foreign exchange transactions, namely selling, buying, and / or placing foreign
exchange, gold, and securities in cash or futures including lending. In managing foreign
exchange reserves, Bank Indonesia has always considered 3 (three) main principles with a
priority scale, namely liquidity (liquidity) and security (security) without ignoring the
principle of obtaining optimal income (profitability).

Foreign loans conducted by Bank Indonesia are foreign loans on behalf of the name
and are the responsibility of Bank Indonesia which is only used in the context of managing
foreign exchange reserves to strengthen the balance of payment positions.the oan can be
monitored by the DPR thorough the result of financial audits by the BPK.

C.4 Conducting Survey

To carry out monetary policy effectively and efficiently, economic and financial data /
information is needed in a timely and accurate manner. To obtain the data / information
BankkIndonesia danat manuelananarakan surara sara harkala or the late time Tap where you
want to give the signature required by Bank Indonesia or other assigned party. Bank
Indonesia or other parties assigned to carry out the survey must keep sources of individual
data confidential unless expressly stated otherwise in the law.

D.ASSIGNMENT AND SUPERVISION OF BANKS

Bank Regulation and Supervision is one of the tasks of Bank Indonesia as stipulated
in Article 8 of Bank Indonesia Law. In order to carry out this task, Bank Indonesia has
enacted regulations, granted and revoked licenses for certain bank institutions and business
activities, conducted bank supervision, and imposed sanctions on banks (Art. 24). In
addition, Bank Indonesia has the authority to stipulate banking regulations that contain the
principle of prudence (Art. 25). With regard to authority in the area of licensing, Bank
Indonesia: Determination of payment instruments is intended so that the payment instruments
used in society meet security requirements for users. Included in this authority is to limit the
use of certain payment instruments within the framework of the precautionary principle. In
the context of exercising the aforementioned authority, Bank Indonesia may inspect payment
system service providers.

D.1 Clearing Arrangements and Operations and Final Settlement Transactions

Bank Indonesia has the authority to regulate the interbank clearing system in rupiah
and / or foreign currencies which includes domestic and cross-country clearing systems (Art.
16). The implementation of interbank clearing activities in rupiah and foreign currency as
well as the final settlement of interbank payment transactions is carried out by Bank
Indonesia or other parties that have received approval from Bank Indonesia (Article 17 jo
Article 18).

D.2 Issuance and Circulation of Money

In accordance with the mandate of the 1945 Constitution, Bank Indonesia is the only
institution authorized to issue and regulate the circulation of rupiah currency (Article 20).
This authority includes revoking, withdrawing, and destroying money and determining the
type, price, characteristics of the money to be spent, materials used, and determining the date
of entry into force as a legal payment instrument (Article 19). As a consequence of this
provision, Bank Indonesia must guarantee the availability of money in the community in
sufficient quantities and with adequate quality. Money issued by Bank Indonesia is exempt
from stamp duty (Article 21). Bank Indonesia may revoke and withdraw rupiah from
circulation by providing a replacement of the same value (Art. 23).

As a consequence of this provision, Bank Indonesia must provide opportunities for

the public to:

1. Provide and revoke the Bank's permission;

2. Provide opening, closure and transfer permits of bank offices:

3. Provide approval for bank ownership and management; and

4. Give permission to the bank to carry out certain business activities (PSL. 26).

Supervision carried out by Bank Indonesia includes direct and indirect supervision
(PSL. 27). Bank Indonesia is authorized to require banks to submit reports, information, and
explanation in accordance with the procedures set by Bank Indonesia, where this can be done
on the parent company, the company, related parties, and affiliated parties from the bank if
needed (PSL. 28). Examination of the Bank is carried out regularly and every time if
necessary and can be done on the parent company, the company's company, related parties,
and affiliated parties from the bank if needed. The bank and other parties are required to
provide the examiner:

1. Description and data requested;

2. The opportunity to see all books, documents, and physical facilities related to their
business activities; and

3. Other things needed like a copy of the required documents and others (PSL. 29).
Bank Indonesia can assign other parties to and on behalf of Bank Indonesia carry out the
examination of the Bank (PSL. 30). Bank Indonesia can order banks to temporarily
temporarily suspend or all of the activities of certain transactions if according to the
assessment of Bank Indonesia the transaction is suspected of being a crime in the banking
sector (PSL. 31). In the case of a state of a bank according to Bank Indonesia's assessment
endangers the business continuity of the bank concerned and / or endangers the banking
system or occurrence of banking difficulties that endanger the national economy, Bank
Indonesia can carry out actions as stipulated in the applicable banking law (PSL. 33).
 D.3 The transfer of bank supervision assignments

in the Bank Indonesia Law is stipulated that the task of overseeing the Bank will be
transferred to the Independent Financial Services Sector Supervision Agency formed under
the law no later than December 31, 2002 (PSL. 34). The diverted task to this institution does
not include the task of bank regulation and tasks related to licensing. The independent
supervision agency will supervise all financial services institutions such as banks, insurance,
pension funds, securities, venture capital, and finance companies and other bodies that carry
out the management of public funds.