Redenomination

The redenomination is a change of monetary system in definite country depending on resignation of money being in circulation so far on newly emitted money. The money reform usually lowers denomination of existing currency which is a result of high inflation which result in emission notes about high denominations by central bank of given country.

Such situation is burdensome for leadership accounts financial as well for citizens as the whole state. It makes the necessity of lowering on road the redenomination of currency. The pays, prices, cash, bank deposits, monetary course are exchanged according to earlier settled proportions of exchange. In colloquial language redenomination marks change "old" currency on "new" one (example change "old" zloty on "new" zloty).

Kinds of redenomination

Many kinds of redenomination can be distinguished and also can be systematized according to the following criteria:

• The aim of redenomination:
  • financial: the stabilization of currency, liquidation of excessive quantity of money as a result of high inflation,
  • non-financial: beyond economical aims; e.g. social causes.
• The economic results which are to be achieved as the results of conducted money reform:
  • equivalent redenomination is the most often stepping out, standard form of exchange of currency, that is cash supplies, bank deposits and economizing made according to earlier settled, the same proportion in relation to pays, the prices, obligations (the redenomination in Poland in 1995 is the example)
  • non-equivalent redenomination - the depending on exchange of currency according to different proportions for prices, pays, obligations (the redenomination in Russia in 1947 is the example).
• Operating criterion:
  • redenomination settled from outdistancing, in definite deadline (example Poland 1995)
  • redenomination unestablished, introduced with day on day (example Russia 1947)
• The criterion of obtainment of legal power of money signs:
  • immediate redenomination (old money signs lose in day of entry validity to circulation of new currency)
  • postponed redenomination (old money signs lose in definite corner deadline their validity since day of entry in life of redenomination)
• Procedural criterion:
  • the exchange of currency follows in short period of time
  • the exchange of currency follows in long period of time

World examples of redenomination

France, year 1960 (the depending on introduction of new monetary individual redenomination - called "heavy" franc about even value of 100 the old francs (1:100), conducted with economic causes - weak in post-war period of stabilization of currency, equivalent, planned from mountain in several stages with period of double currency. The money reform in France is the classic example of redenomination.

Russia, year 1947 - redenomination, depending on exchange "old" rouble on "new" with beyond economical causes, conducted with day on day, non equivalent, without period of double currency.

Argentina, year 1985 - the redenomination of money/currency from "peso" on "australa".

Brazil, year 1986 - the redenomination of money/currency from "cruzeiro" on "cruzado".

Bolivia, year 1987 - the redenomination of money/currency from "peso" on "boliviano".

Redenomination — recommended articles

Inflation target — Currency crisis — Foreign national mortgage — Money emission — Monetary system — Interventionism — Foreign exchange reserves — European monetary system — Monetary policy instruments

References

• Calomiris, C. W. (2007). Devaluation with contract redenomination in Argentina. Annals of Finance, 3(1), 155-192.

Author: Paulina Kononowicz