Redenomination
Redenomination is the process of changing the face value of banknotes or coins used in circulating currency.
When redenomination occurs, financial data that spans the change must be correctly accounted for. For example, the GDP reported by the Central Bank of Nicaragua is properly documented.
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[edit] Inflationary
In times of inflation, the same number of monetary units have continually decreasing purchasing power. In other words, prices of products and services must be expressed in higher numbers. If these numbers become excessively large, they can impede daily transactions because of the risk and inconvenience of carrying stacks of bills, or the strain on systems, e.g. automatic teller machines (ATMs), or because human psychology does not handle large numbers well. The authorities may alleviate this problem by redenomination: a new unit replaces the old unit with a fixed number of old units being converted to 1 new unit. If inflation is the reason for redenomination, this ratio is much larger than 1, usually a positive integral power of 10 like 100, 1000 or 1 million, and the procedure can be referred to as "cutting zeroes".[1] Recent examples include
| New unit | = | x | Old unit | year |
|---|---|---|---|---|
| Fourth Zimbabwean dollar (ZWL) | = | 1 000 000 000 000 | ZWR | February 2009 |
| Third Zimbabwean dollar (ZWR) | = | 10 000 000 000 | ZWN | August 2008 |
| Second Zimbabwean dollar (ZWN) | = | 1 000 | ZWD (first dollar) | August 2006 |
| New Mozambican metical | = | 1 000 | old meticais | 2006 |
| This table is not exhaustive. | ||||
Although the ratio is often a positive integral power of 10, sometimes it can be a×10n where a is a single digit integer and n is a positive integer. Partial examples include
| New unit | = | x | Old unit | year |
|---|---|---|---|---|
| Rentenmark | = | 1 000 billion | Papiermark | 1923 |
| Chinese "gold" yuan | = | 3 million | old yuan | 1948 |
| Chinese "silver" yuan | = | 500 million | "gold" yuan | 1949 |
| New Taiwan dollar | = | 40 000 | old dollars | 1949 |
| Azerbaijani new manat | = | 5 000 | old manat | 2006 |
| This table is not exhaustive. | ||||
Occasionally, the ratio is defined in a way such that the new unit is equal to a hard currency. As a result, the ratio may not be based on an integer. Examples include
| New unit | = | x | Old unit | = | Anchor currency | year |
|---|---|---|---|---|---|---|
| Brazilian real | = | 2 750 | cruzeiros reais | = | United States dollar | 1 July 1994 |
| Yugoslav novi dinar | = | 10~13 million | 1994 dinara | = | German mark | 24 January 1994 |
| This table is not exhaustive. | ||||||
In the case of hyperinflation, the ratio can go as high as millions or billions, to a point where scientific notation is used for clarity or long and short scales are mentioned to disambiguate what kind of billion/trillion is meant.
In the case of chronic inflation which is expected to continue, the authorities have a choice between a large redenomination ratio and a small redenomination ratio. If a small ratio is used, another redenomination may soon be required, which will entail costs in the financial, accounting, and computing industries. However a large ratio may result in inconveniently large or small prices at some point in the cycle.
After a redenomination, the new unit is often has the same name as the old unit, with the addition of the word "new". The word "new" may or may not be dropped a few years after the change. Sometimes the new unit is a completely new name, or a "recycled" name from previous redenomination or from ancient times.
| New unit | = | x | Old unit | year | Nature of the new unit |
|---|---|---|---|---|---|
| Turkish new lira | = | 1 million | old lira | 2005 | "new" is an official designation and has been dropped in 2009. |
| New Taiwan dollar | = | 40 000 | old dollars | 1949 | "new" is an official designation and is still used in official documents today |
| Argentine austral | = | 1 000 | Peso argentino | 1985 | completely new name |
| Yugoslav 1993 dinar | = | 1 million | 1992 dinara | 1993 | no official designation |
| Brazilian real | = | 2 750 | cruzeiros reais | 1994 | recycled unit of Brazil before 1942 |
| This table is not exhaustive. | |||||
[edit] Monetary union
When countries form a monetary union, redenomination may be required. The conversion ratio is often not a round number, and may be less than 1.
| New unit | = | x | Old unit | year | Monetary union |
|---|---|---|---|---|---|
| Danish krone | = | 0.5 | Danish rigsdaler | 1873 | Scandinavian Monetary Union |
| Gulden österreichischer Währung | = | 100/105 | Gulden Conventions-Münze | 1858 | Wiener Münzvertrag between the states of the German Customs Union and the Austrian Empire |
| euro | = | 0.787564 | Irish pound | 1999/2002 | Eurozone |
| euro | = | 40.3399 | Belgian or Luxembourgian francs | 1999/2002 | Eurozone |
| This table is not exhaustive. | |||||
[edit] Decimalisation
The currency was decimalised in all countries where a pounds-shillings-pence £sd system (£1 = 20 shillings = 240 pence) was previously used. Several countries chose to change the main currency unit at the same time. By defining 1 dollar = £0.5 = 100 cents, 1 shilling would conveniently turn into 10 cents.
| New unit | = | x | Old unit | year |
|---|---|---|---|---|
 German gold mark |
= | 1/3 | Vereinsthaler | 1873 |
 (New) Penny |
= | 2.4 | Penny | 1971 |
 South African rand |
= | 0.5 | South African pound | 1961 |
 Australian dollar |
= | 0.5 | Australian pound | 1966 |
 New Zealand dollar |
= | 0.5 | New Zealand pound | 1967 |
| This table is not exhaustive. | ||||
[edit] List of currency redenominations
This table lists various currency redenominations that have occurred, including currency renaming where the conversion rate is 1:1.
| New unit | Exchange rate (new:old) | Old unit | Year | Country | Cause | Note |
|---|---|---|---|---|---|---|
| Chinese "silver" yuan | 500 000 000 | "gold" yuan | 1949 | China (Republic of China) | inflation | |
| Yugoslav novi dinar | 13 000 000[2] | 1994 dinara | 1994 | Yugoslavia | inflation | Anchor currency: German mark |
| Chinese "gold" yuan | 3 000 000 | (old) yuan | 1948 | China (Republic of China) | inflation | |
| Peruvian nuevo sol | 1 000 000 | Peruvian inti | 1991 | Peru | hyperinflation | "nuevo" is an official designation and is still in use |
| Yugoslav 1993 dinar | 1 000 000 | 1992 dinara | 1993 | Yugoslavia | inflation | no official designation |
| Turkish new lira | 1 000 000 | Turkish lira | 2005 | Turkey | inflation | "new" is an official designation and has been dropped in 2009[dated info] |
| Hryvnia | 100 000 | Karbovanets (third) | 1996 | Ukraine | inflation | |
| New Taiwan dollar | 40 000 | Taiwan dollars | 1949 | Taiwan (Republic of China) | inflation | "new" is an official designation and is still used in official documents |
| Second Renminbi yuan | 10 000 | First Renminbi yuan | 1955 | China (Peoples Republic of China) | inflation | |
| Peso argentino | 10 000 | Peso ley | 1983 | Argentina | inflation | |
| Peso (convertible) | 10 000 | Austral | 1992 | Argentina | inflation | |
| Polish złoty | 10 000 | Polish złoty | 1995 | Poland | inflation | |
| Leu | 10 000 | Romanian Leu | 2005 | Romania | inflation | |
| New Ghanaian cedi | 10 000 | Cedi | 2007 | Ghana | inflation | |
| Azerbaijani new manat | 5 000 | (old) manat | 2006 | Azerbaijan | inflation | |
| Turkmenistani new manat | 5 000 | (old) manat | 2009 | Turkmenistan | inflation | |
| Real | 2 750 | Cruzeiro real | 1994 | Brazil | inflation | Anchor currency: United States dollar |
| Cruzeiro (antigo) | 1 000 | Real (old) | 1942 | Brazil | inflation | |
| Cruzeiro (novo) | 1 000 | Cruzeiro (antigo) | 1967 | Brazil | inflation | |
| Austral | 1 000 | Peso argentino | 1985 | Argentina | inflation | |
| Peruvian inti | 1 000 | Peruvian sol | 1985 | Peru | inflation | |
| Cruzado | 1 000 | Cruzeiro (novo) | 1986 | Brazil | inflation | |
| Cruzado Novo | 1 000 | Cruzado | 1989 | Brazil | inflation | |
| Cruzeiro real | 1 000 | Cruzeiro (third) | 1993 | Brazil | inflation | |
| New Shekel | 1 000 | Shekel | 1986 | Israel | inflation | |
| Russian Rouble | 1 000 | Rouble | 1998 | Russia | inflation | |
| Bulgarian New Lev | 1 000 | Bulgarian Lev | 1999 | Bulgaria | inflation | Anchor currency: German mark |
| Belarussian Rouble | 1 000 | Rouble | 2000 | Belarus | inflation | |
| New Mozambican metical | 1 000 | (old) meticais | 2006 | Mozambique | inflation | |
| Bolivar Fuerte | 1 000 | (old) Bolivar | 2008 | Venezuela | inflation | |
| Euro | 239.640 | Slovenian tolar | 2006 | Slovenia | monetary union | Eurozone |
| French Franc | 100 | Franc | 1960 | France | inflation | originally called New Franc |
| Peso ley | 100 | Peso moneda nacional | 1970 | Argentina | inflation | |
| Euro | 40.3399 | Belgian or Luxembourgian francs | 2002 | Belgium Luxembourg | monetary union | Eurozone |
| Euro | 30.1260 | Slovak koruna | 2009 | Slovakia | monetary union | Eurozone |
| Peso moneda nacional | 25 | Peso moneda corriente | 1881 | Argentina | inflation | |
| Euro | 1.95583 | Deutsche Mark | 2002 | Germany | monetary union | Eurozone |
| Cruzeiro (third) | 1 | Cruzado Novo | 1990 | Brazil | renaming | |
| Karbovanets (third) | 1 | Soviet ruble | 1992 | Ukraine | ||
| Euro | 0.787564 | Irish pound | 2002 | Ireland | monetary union | Eurozone |
| Euro | 0.585274 | Cypriot pound | 2008 | Cyprus | monetary union | Eurozone |
| Austro-Hungarian krone | 0.5 | gulden/forint | 1892 | Austria-Hungary | monetary union | Moving from silver to gold standard |
| Euro | 0.429300 | Maltese lira | 2008 | Malta | monetary union | Eurozone |
| Peso moneda corriente | ? | Real | 1826 | Argentina | ||
| Second Zimbabwean dollar | 1 000 | (first) dollar | 2006 | Zimbabwe | inflation | |
| Zimbabwe Third Dollar | 10 000 000 000 | Zimbabwe Second Dollar | 2008 | Zimbabwe | Hyperinflation | |
| Zimbabwe Fourth Dollar | 1 000 000 000 000 | Zimbabwe Third Dollar | 2009 | Zimbabwe | Hyperinflation |
[edit] See also
- Least-valued currency unit
- Highest-valued currency unit
- Decimalisation
- Denomination (currency)
- Devaluation
- Dollarization
- Hyperinflation
- Inflation
[edit] References
- ^ "Finance Ministry and National Bank decide to slash four zeroes from ROL's tail | Ziarul Financiar". Zf.ro. 2004-01-29. http://www.zf.ro/articol_37822/finance_ministry_and_national_bank_decide_to_slash_four_zeroes_from_rol_s_tail.html. Retrieved 2010-01-06.[dead link]
- ^ Pegged to the Deutsche Mark upon renomination, but subsequently subject to drift
