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In 1963, Indonesia took control of Western New Guinea (formerly a Dutch colony whose status was separated from the rest of Indonesia/Dutch East Indies since 1949), and renamed it West Irian. One curious detail was that Indonesia issued a special currency, the West Irian Rupiah (WIR), which is exchangable 1:1 to the Netherlands New Guinean gulden, and is distinct from the standard Rupiah used in the rest of Indonesia. According to Wikipedia, only in 1971 was the Indonesian rupiah (IDR) introduced in the territory, used alongside the WIR until 1973 when the IDR becomes the only legal tender.

The Wikipedia article says that the New Guinean gulden was a stronger currency than the IDR, and that the IDR was experiencing a high level of inflation. I guess this means the IDR was somewhat undesirable, but I still don't understand the logic of having a different currency in one part of your country, especially when it's a new region that you're trying to integrate. Wouldn't this be an obstacle for commerce with the new territory? If inflation is a concern, wouldn't the WIR still be susceptible to inflation?

From the Indonesian point of view, what was the advantages of having the West Irian rupiah? How would things be much worse if Indonesian rupiah was used immediately? How about the negative effects from having separate currencies?

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    I believe Indonesia's central bank explains it well enough in their pdf.
    – J Asia
    Jan 7, 2018 at 7:37
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    @JAsia Can you summarize that paper into an answer? Looks like you have a good source.
    – KorvinStarmast
    Jan 8, 2018 at 19:06
  • @JAsia would be interested to see a summary that answers the question. The paper is quite long, and goes into historical details unrelated to the question. I can't find a detailed explanation of the reasoning, other than simple statements like "The [WIR] circulation was a transition act performed by the government ... "
    – user69715
    Jan 11, 2018 at 8:16
  • @user69715 - I though the question was why they used a separate currency (IB Rupiah vis-a-vis Rupiah), that would be p.4 onwards. What specific info did you have in mind?
    – J Asia
    Jan 11, 2018 at 11:39

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The Indonesians did this in several parts of the country where people were used to "stronger" foreign currencies. For instance, in parts of Borneo that had formerly used British-Malayan currency, the Indonesians issued the Riau rupiah that was pegged to the U.S. dollar, and therefore a stronger currency than the Indonesian rupiah that was not so pegged. The West Irian Rupiah was indirectly pegged to the Dutch currency.

This was a transition mechanism to get people of these outlying regions used to trading Indonesian-like "rupiahs" that had "temporary" (for some years) protection against the devaluation of the "real" rupiah. Such protections were withdrawn in 1973, a good time to do so, when high oil prices helped support the Indonesian rupiah. That put the people of these territories on an equal footing with other Indonesians.

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    Any source indicating that there were measures to protect these specific regions from devaluation? And that 1973 decision was linked to the oil prices?
    – user69715
    Jan 5, 2018 at 21:34

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