Concluding Remarks and Policy and Regulatory Implications

Several issues related to the development of the payment system in Indonesia remain that need to be addressed further. As Bank Indonesia has encouraged the development of a less cash-dependent society since 2006, the use of information technology has become an important part of the payment system. Too much reliance on a technology-based system, however, can invite risks. Computer viruses, hackers, and data theft are a few sources of technology failure that can disrupt the national payment system. Other than technologyrelated operational risk, the payment system also faces potential liquidity-related operational risk stemming from payment system participants who fail to settle their transactions. To mitigate this risk, Bank Indonesia has enacted legislation to regulate any liquidity problems of payment system participants.

Bank Indonesia issued PBI 10/6/PBI/08, which reflects the four principles of payment system policy. This new regulation fully complies with the Bank for International Settlements core principles for systematically important payment systems (Bank for International Settlements 2001). Operational risk mitigation for RTGS, which was administered by Bank Indonesia, began with system design, reliability of technology, and supporting networks. This included live tests conducted by certified information technology auditors. In the second quarter of 2008, a guest bank facility or RTGS terminal was established for member banks that experience disruptions in their systems. As a result, operations can now be maintained at Bank Indonesia offices. To overcome credit risk, gridlock, and line mechanism issues, facilities have been put in place to prevent liquidity crunches at member banks (Bank Indonesia 2009a). Bank Indonesia also provides a daily liquidity facility (a short-term funding facility) to banks that require funds. Funding is secured against quality bonds such as SBI and Surat Utang Negara¹⁰ as collateral.

In 2007, Bank Indonesia conducted three live tests, which involved all vendors, banks, and non-banks institutions who were members of the settlement system, clearing system, and securities settlement system. In March 2008, a second live test was conducted. Bank Indonesia has also instituted a disaster recovery plan and disaster recovery centre to ensure the smooth functioning of a payment system fully supported by reliable infrastructure to minimize downtime. All member banks are required to put in place and maintain an adequate backup system and to conduct regular live tests of their disaster recovery plan to improve its performance (Bank Indonesia 2007c).

To mitigate foreign exchange settlement risk (of payment settlement failures in interbank foreign exchange transactions), Bank Indonesia plans to develop a PVP settlement mechanism within BI-RTGS, which will make simultaneous settlement possible. Since US dollar/rupiah transactions dominate interbank foreign exchange transactions in Indonesia, this has become a priority. A US dollar/rupiah PVP system will be developed by building a US dollar/rupiah PVP link connecting BI-RTGS (for rupiah payment settlement) with the US Dollar-Clearing House Automated System (for US dollar payment settlement) in Hong Kong, China (Bank Indonesia 2009a). To facilitate this endeavor, Bank Indonesia and the Hong Kong Monetary Authority signed a memorandum of understanding on 24 October 2008.

To encourage the use of non-cash payment systems, which are deemed to be more secure than cash-based systems, since 2006 Bank Indonesia has undertaken several programs to endorse a “Less Cash Society” under its main program “Ayo ke Bank” (let's go to the bank). Programs to date have included a card education campaign and electronic banking (Bank Indonesia 2007d). From the demand side, a key challenge has been changing the cultural mindset in Indonesia that “cash is king.” From the supply side, there is an urgent need to improve security, technology, and the legal infrastructure. In 2008, an important step was taken to ensure the legality of electronic transactions in Indonesia. On 21 April 2008, Law 11/2008 on Electronic Information and Transactions was enacted (Bank Indonesia 2009a). It is expected that the new law will accelerate Indonesia's transition toward a less cash-based society in the near future.

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