The country of Indonesia is proposing a significant revision of its legal framework governing the financial sector. To give you an idea, here's how it could appear

After two years of failed attempts and market resistance, Indonesia is expected to adopt significant changes to the regulation of its banking sector as early as this week.

The new bill aims to broaden the mandate of the central bank and strengthen its authority to buy government bonds during times of crisis, as it had done in the past three years to shore up the largest economy in Southeast Asia. The central bank will have purchased debt papers totaling 1,144 trillion rupiah (about $US73 billion) by the end of 2022. The legislation also aims to update regulations to keep up with developments in blockchain technology and digital currencies.

After passing through the finance panel on December 8, the measure will likely be put to a vote in parliament this week. Consider the following information regarding the revamping of the financial system:

For what reasons is Indonesia revising its monetary regulations?

The current set of rules is confusing and often inconsistent. Given the current fintech boom and the central bank's aspirations for a digital rupiah, they're also hopelessly out of date.

As a result of these reforms, the government hopes that the local capital markets would be better able to meet the needs of the economy.

It's also in keeping with President Joko Widodo's plan to streamline regulations so that financial regulators can respond more quickly to emergencies.

What can we expect from the Fed in the near future?

If passed, the law will formalize the central bank and the finance ministry's unusual move during the pandemic by giving Bank Indonesia the right to come to the government's rescue through bond purchase when the president declares a crisis.

In addition to its current duty to preserve rupiah and price stability, lawmakers want the central bank to "participate in preserving financial system stability in order to support sustainable economic growth," as well as maintain payment system stability.

The inclusion of job creation and economic growth in Bank Indonesia's mandate was previously proposed, but was removed from the most recent draft due to concerns raised by analysts about the potential impact on Bank Indonesia's independence.

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