Indonesia's plan for a currency board may look attractive. But it is a high-risk gamble that could cause huge damage. The superficial appeal of fixing the rupiah is clear, given that the currency's plummet to only a third of its pre-crisis valueh as wreaked havoc, especially to corporate balance sheets. Hong Kong's currency board, meanwhile, has helped cushion it from the regional crisis.

Alas, the search for a "magic bullet" is an illusion. When Hong Kong pegged its currency in 1983, it had a strong banking system and no debt problem. Indonesia – with its near-bankrupt banks and private-sector debt crisis - could hardly be more different. Moreover, financial markets are deeply sceptical about President Suharto's motives and willingness to reform the economy.

Optimists blithely assume a currency board would be protected from speculative attack because the central bank's $19bn hard currency reserves are triple the value of rupiah notes and coins at current exchange rates. This is nonsense. Notes and coins are only a tiny fraction of the total money supply. Moreover, the reserves are swamped by the country's $137bn foreign debt – much of it short term and owed by private companies.

The risk is that people would treat a currency board as the last opportunity to swap rupiah for dollars at a favourable rate. The supply of rupiah notes and coins would shrink, while interest rates would soar. Those who did not head for the exits rapidly could find their money trapped in banks that had literally run out of hard cash. The government would be powerless because the currency board would stop it supplying liquidity to the financial system.

Such a scenario might be avoided if confidence in Indonesia were high. But it is not. The downside risk of implementing a currency board and failing would not only be high for Indonesia but would focus attention on currency boards in even robust economies like Hong Kong and Argentina – with potentially worrying consequences. Mr Suharto should think again.