There's an extraordinary economic debate under way in Indonesia, the world's fourth-most populous country. The question for President Suharto is whether to lock that nation's currency, the rupiah, to the US dollar under a "currency board" or to leave the rupiah "floating" on exchange markets, its value set by demand and supply.
It sounds terribly arcane. And, in a way, it is. Economists can have a great time disputing the merits of each of the two foreign exchange systems.
But this is the real world, not academic theorizing. The issue is so important that President Clinton phoned Suharto to urge him to drop the plan for a board. Michel Camdessus, head of the International Monetary Fund, says the idea is premature. The IMF last fall put together $43 billion in assistance to help Indonesia snap back from the financial instability that swept through East Asia.
Both men warned Suharto he was in danger of violating the terms of that rescue package and thereby losing it.
What the two fear is that if a newly created currency board didn't succeed in fixing the rupiah's value, it could renew financial chaos in Indonesia, already facing food riots. That could destabilize East Asia again and possibly developing countries in other parts of the globe. This would be a blow to the economies of the US and other industrial nations.
But Suharto has appointed as an adviser a currency board enthusiast, Steven Hanke, an economist at Johns Hopkins University.
With a currency board, Indonesia would put its entire reserves of foreign hard currencies - perhaps $19 billion - at stake to hold the value of the rupiah fixed against the dollar. If foreign or domestic holders of rupiahs wished to get rid of them, the board would buy them with US dollars or other desirable currencies it holds.
David DeRosa, who teaches finance at Yale University, says the $19 billion would disappear in a flash. Indonesian businesses owe at least $20 billion in short-term debts to foreigners - more than the reserves.
Many who would cash in rupiahs worry about the political future of Indonesia - and the currency's value - when its autocratic president leaves the scene.
One concern in Washington is that the economically powerful Suharto family would take advantage of a currency board to switch much of their wealth into dollars. It was the president's children who introduced him to Professor Hanke at a time when Suharto was looking for a quicker economic fix than will come with reforms demanded by the IMF.
A currency board is not likely to help in Indonesia's present circumstances - as such boards have in Hong Kong and Argentina. Under a board, any loss of reserves means the domestic money supply shrinks by the same amount. That would raise interest rates and likely cause a deep recession - risky when rioters have attacked shops of ethnic Chinese.
In imperial days, Britain used currency boards to manage monetary stability in many of its colonies. Today, it's harder to sell the argument that the world needs an imperial dollar. Better if nations learn financial discipline with their own currencies.