An Adventure Capitalist’s Notes On Indonesia (Part 1)
This is the first post in a series titled “Adventure Capitalist’s Notes,” which will be posted at the end of our time in each country.  They will be written by Scott, the AsiaWheeling resident “Adventure Capitalist,” and comment on curious market-oriented phenomenon occurring in each currency zone.  We encourage informed opinions, corrections, and clarifications in the comments of the post.  These posts, like all of AsiaWheeling’s content, are not to be construed as investment advice.
Pre-Measurement
One thing we came across in Indonesia was the premeasurement of petrol used in motorbikes. Â While many more developed countries and cities will sell all petrol using pumps with large reservoirs, smaller stands in Indonesia will measure out liters of petrol to be stored in bottles. Â This achieves a series of valuable benefits specific to the market.
Mechanisms of Trust
First, it creates transparency and trust regarding the actual amount of petrol being purchased. Â Signs across Indonesia warn consumers against vendors tweaking the sensitivity of their scales in favor of overcharging. Â A makeshift pump or on-the-spot measurement system exposes itself to this dubious behavior. Â Premeasurement also allows the buyer to inspect the hue of the petrol and see that each bottle is issued by a previous third party with the liter marking.
Inventory Dosage
Second, for the buyer, it provides for an appropriate “dosage” required by both the buyer and the seller.  For the buyer, one liter at a time is all that is necessary to keep her bike going, and is a cheaper purchase  than an entire tankfull.  With small bottles available in abundance, there is no need to tie up working capital in excess gas.
Likewise, for the seller, it provides an appropriately sized inventory on hand, rather than a traditional underground reservoir requiring land, construction, maintenance, and a huge capital outlay to refill.
Branding Petrol
Third, and possibly the most intriguing differentiation from stand to stand is branding. Â The petrol itself isn’t branded with an oil company, but rather by the vessels in which it sold. Â Across Indonesia, one sees Absolut vodka bottles as a standard for one liter transactions. Â Above you see Coca-Cola bottles, and below, Absolut vodka.
Coca-Cola, Absolut, Jack Daniel’s, and even giant sake bottles are used to store single liter doses of petrol. Â Is there a value ascribed to these branded holding vessels? Is one stand considered subtly more reputable if all of their bottles are matching in brand? Â Does this suggest that Coca-Cola and Absolut are more reputable brands than Pertamina or Shell?
Modular Currency
In paying for a box of biscuits that came to 4,000 rupiah (USD 0.42), I handed the woman a 10,000 note.  With the box of biscuits came rp6,000 change in the form of a rp5,000 note stapled to a rp1,000, effectively minting a single rp6,000.
Brilliant. Â I’d never encountered this before, and in the U.S. where bills are slightly more sacrosanct, this would be considered a defacement risking rejection or confusion if used in a transaction. Â Most likely, of all the change given out at this counter all day, there are two or three most common amounts. Â To save time, the shopkeeper could prepare by finding these most common combinations and joining them together for later use.
This got me thinking about the concept of a modular currency, one that physically can be combined to create single units of a larger amount; one that has the tactile and visual attributes of the value it represents.
Both physical and numerical currency, like all other things, has been designed. Â In the case of the combined rp6,000 note, the top down design of the Bank of Indonesia has been modified and re-designed by the end user of the currency. Â If universally accepted within the nation (the key attribute of currency), this modification may have further implications.
The concept of currency itself is completely modular. Â One hundred cents make one dollar, and 100 pence make one pound.
Whatever the total amount owed happens to be, the buyer can combine any denomination of smaller units summing to the amount due. Â For the most part, coins worth less are smaller, and coins worth more are larger and sometimes shinier.
The five Swiss Franc coin (~USD5), for example, is heavy enough to serve as a paperweight, and about the size of a Ritz cracker. Â It really feels like it’s worth something compared to any other coin out there.
Because of the relative velocity of notes, larger, less common bills like the USD $100 are more often crisp, where $1 bills are worn, crumpled, and soggy.
In developed nations, representing and designing on top of currency rarely happens on the physical level, because the transactions demanding re-designed currencies are generally very large and represented primarily on computer screens.  Medium sized transactions in the developed world, done on credit card, are notoriously non-physical.  Because the use of “plastic” is so effortless and removed from the concept of actual cash, it is a huge contributing factor in amassing large personal debt and even bankruptcy.  It seems removing the physicality of cash has both large costs along with its obvious benefits of traceability and compactness.
However it’s the largest transactions in the developed world which are the biggest examples on non-physical currency modification, and also have the power to be the most harmful for our economy.
These supercharged re-designed currencies, an analog to the rp6,000 note, are over the counter (OTC) financial derivatives. Â Swaps are a piece of currency that you revisit every couple of months to staple on given amount. Â AÂ subprime CDO is no more than the soggiest, most disgusting one dollar bills stabled together and placed to equal value as a crisp Benjamin.
These are the transactions that underpin a lot of the success the U.S. and Western Europe has had, but can you picture a CDO? Â Can you put a swap in your filing cabinet? Â Not like you can touch two stapled notes. Â Would standardizing a physical representation of these complicated products make a difference? Â I’d love to be involved with an experiment in package design for this purpose.
And on the grandest level, the central banks of governments are doing what the shopkeeper did with the rp6,000 note with their own currencies by design. Â Because many developing world currencies like the Chinese Renminbi and the Russian Ruble are pegged to a (secret) basket of currency combinations, it would be like the government is stapling four dollars, two euros, and two pounds sterling together and calling it 100 RMB, packaged for domestic consumption with the crimson face of Mao Zedong.
Comments
The 1-liter petrol phenomenon is amazing! I’ve never heard of such a thing. The color of the fuel had me thinking… with such a big palm oil industry in Indonesia is some portion (both gross or mixed) of fuel sold derived from these trees?
Very interesting! Loving the blog in general, you guys rock
The practice of selling petrol in recycled bottles is also common in Vietnam, Cambodia, Central Asia, and Africa. But recycled Absolut spirit bottles is probably the most handsome form of packaging I’ve seen. It makes me wonder if they use Grey Goose bottles in Jimbaran.
The bottles have been replenished with either a) low octane petroleum adultered with kerosine and drops of octane booster; or b) bioethanol (also adutered with stuff). In Indonesia palm based petroleum was, until the recent government biofuel subsidy, more expensive than crude based petroleum. Despite this, and the fact that Indonesia is a large producer of palm oil, biofuel consumption among vehicles is still uncommon. I therefore chose a).
Another cheeky practice is organized recalibration of meters at petrol stations. As you would expect, this causes underdelivery to the customer. I heard that it’s not uncommon in Vietnam and Cambodia for a whole tanker’s worth of petrol to be stolen that no storage capacity remains for new deliveries.
Well written Norton
The absolute bottles they use in Bali are 750ml, most people think they are 1 litre bottles, most are mixed with all sorts of crap from from cooking oil to urine. Never use these bottle.