Abstract
<p align="justify">The exchange rate is one of the most important indicators in the economy. Moreover, with the increasing intensity of trade between countries, commonly referred to as international trade, this economic indicator becomes important for every country, including Indonesia. The change in the Indonesian exchange rate system to a free-floating system has made the exchange rate fluctuations more dynamic. The fluctuations are influenced by various factors, both internal and external. This study aims to determine the effect of the money supply (M<sub>2</sub>), foreign exchange reserves, SBI interest rates and world crude oil prices on the rupiah/dollar exchange rate in 2017-2020 both in the short run and in the long run. The data used is monthly time series data from 2017-2020. The analytical method used in this study is the Error Correction Model (ECM). The results in this study indicate that in the short run and long run the money supply and foreign exchange reserves variables have a significant effect on the rupiah exchange rate in 2017-2020.</p>
Highlights
The rapid flow of globalization and technological advances has made the flow of information between regions increasingly swift without being constrained by distance and regional boundaries
In the short and long run, the variable of Money Supply or M2 had a positive and significant effect on the Rupiah Exchange Rate in 2017-2020. This result is in line with the research of Demak et al, (2018) and Yuliyanti (2014) that in the short run and long run the Money Supply has a positive influence on the exchange rate
This condition is in accordance with the money supply theory which says that the money supply and the exchange rate have a positive relationship
Summary
The rapid flow of globalization and technological advances has made the flow of information between regions increasingly swift without being constrained by distance and regional boundaries. Globalization makes the international trade easier and more intensive. For Indonesia, the use of US dollar in its international trade transactions will cause the exchange rate of the rupiah against the US dollar to continue to fluctuate. The fluctuations in the exchange rate can be considered reasonable because since August 1997 Indonesia has begun to adopt free floating system (Yuliyanti, 2014). In such system, the position of the rupiah exchange rate against foreign currencies is determined by the market mechanism
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