The Dynamics of Fiscal Policy Intervention on Monetary Policy: Analysis of the Impact of Cash Withdrawals by the State from Bank Indonesia

Abstract

This research is based on the increasing complexity of fiscal and monetary policy interactions in Indonesia, particularly in relation to the withdrawal of state funds from Bank Indonesia, which has the potential to affect the liquidity of the financial system and monetary stability. This research aims to analyse the dynamics of fiscal intervention through cash withdrawals by the government and its impact on the effectiveness of monetary transmission and the independence of Bank Indonesia. This research uses a descriptive qualitative approach with a literature study method sourced from official publications, institutional reports, scientific journals, and current economic articles.The results of the study show that state cash withdrawals have the potential to trigger liquidity fluctuations, affect money market equilibrium, and encourage adjustments to Bank Indonesia's monetary operations. These changes in liquidity also have an impact on the effectiveness of monetary transmission through interest rates, credit, and market expectations. Fiscal intervention has the potential to undermine central bank independence, although transparent and integrated policy coordination can mitigate this risk. Therefore, strengthening fiscal-monetary coordination and measured state cash management is crucial. The government and Bank Indonesia need to improve policy synchronisation and liquidity management transparency in order to maintain macroeconomic stability.