goods) and also became a net importer of many Western goods. Its currency, the rupiah, was, like most other Asian currencies, allowed to "float" on the international currency market.
The rupiah did manage to stay afloat until the early 1990s when the government and banking community of a neighboring empire, Thailand, decided to "peg the baht" and link the baht's staying power and stability against the United States dollar. Essentially, any nation's currency is largely a proposition of faith. Think of paper money as a promissory note. The government that issues the paper money, in effect, is telling the world, "This currency is good. You can accept it as payment for any kind of debt, and there is enough currency of value on hand in our government to back up this statement." Some nations, like the United States, Britain, and Sweden back up that promise with a "gold reserve," the original idea of which was that there would be $1 in gold for every $1 in currency in existence. That, of course, has never happened, but the "promise that it could" is one of the things that makes the U.S. dollar a fairly stable currency. (Other stable currencies are the Japanese Yen, the British Pound, the Swiss Franc, the German Mark, and the Dutch Guilder.) The main purpose of linking (sometimes called "pegging") a nation's currency with a stable currency, is that the currency inherits the perception of value (Cimiero, 1997).
That's what happened in the early 1990s, when Thailand made the decision to make the baht exchangeable for US dollars. Linking the baht to the dollar accounted for Thailand's astounding economic growth during the early 1990s. Likewise, unlinking it, as it did in July of 1997 led to a rapidly declining currency which made Thailand at risk for its rupiahs that were linked to the baht and also floated on the Asian currency market. Indonesia was just one of the many Asian nations to suffer massive recessions and accumulat...