Denomination (currency): Difference between revisions

Content deleted Content added

Inline

Revision as of 09:21, 11 February 2011

Denomination is a proper description of a currency amount, usually for coins or banknotes. Denominations may also be used with other means of payment like gift cards.

Subunit and super unit

In a currency, there is usually a main unit (base), and a subunit that is a fraction of the main unit. In some countries, there are multiple levels of subunits. In the former Ottoman Empire, 1 lira = 100 kuruş = 4000 para = 12000 akçe. Today, only a few places have more than one subunit, notably Chinese speaking regions: the mainland China (renminbi), the Hong Kong (dollar), and Republic of China's (New Taiwan dollar). In addition, the Jordanian dinar is divided into 10 dirham, 100 qirsh/piastres, or 1000 fils. Many countries where Western European languages are spoken currently have their main units divided into 100 subunits. Some currencies that previously had subunits no longer do, because inflation has rendered the subunit useless. A prominent example is the Japanese yen, which was formerly divided into 100 sen or 1000 rin. Both subunits were demonetized at the end of 1953.^[1]

Occasionally, a super unit is used as a multiple of the main unit. Examples include Korean whan = 5 yang in 1893, Iranian toman 10 rials (used informally today). In the Ottoman Empire, lira and kuruş were super units at some point before becoming the main unit.

Decimal vs. non-decimal

A decimal currency is a currency where the ratio between the main unit and the subunit is an integral power of 10. Non-decimal currencies are now rare but had some advantages in daily life transactions. For example, 1 South German Gulden = 60 Kreuzer. 60 can be divided into 2, 3, 4, 5, 6, 10, 12, 15, 20 or 30 parts that are still integers, making pricing easy. This advantage (in an age without mechanical or electronic calculators) and the lack of widespread accurate weighing apparatus (meaning an item might sometimes simply be divided in 2,4,6 etc.) coupled with tradition were the reasons why non-decimal currencies were used.

In theory, two countries currently use non-decimal currency: Mauritania (1 ouguiya = 5 khoums) and Madagascar (1 ariary = 5 iraimbilanja). In practice, however, the value of the main unit in each case is so low (less than 1/1000 of a United States dollar) that the sub-unit is not of any practical use and is rarely seen in circulation. The last major countries to use non-decimal currencies in practice were the United Kingdom (until 1971), Ireland (1971), Malta (1972) and Nigeria (1973).

Choice of name

It is common to name a unit with a unit of weight, such as pound, lira, and baht. These currencies are usually originally defined as that amount of some precious metal. Another choice of name is some form of derivative of the political entity. Afghan afghani and euro fall into this category. Sometimes the name is simply the name of the metal, of which the coins are made, such as Polish złoty and Vietnamese đồng.

Redenomination

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".^[2] 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	=	5000	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	=	2750	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	=	2750	cruzeiros reais	1994	recycled unit of Brazil before 1942
This table is not exhaustive.

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.

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.

Book keeping

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.

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	500000000	"gold" yuan	1949	China (Republic of China)	inflation
Yugoslav novi dinar	13000000^[3]	1994 dinara	1994	Yugoslavia	inflation	Anchor currency: German mark
Chinese "gold" yuan	3000000	(old) yuan	1948	China (Republic of China)	inflation
Yugoslav 1993 dinar	1000000	1992 dinara	1993	Yugoslavia	inflation	no official designation
Turkish new lira	1000000	Turkish lira	2005	Turkey	inflation	"new" is an official designation and has been dropped in 2009^{[needs update]}
Hryvnia	100000	Karbovanets (third)	1996	Ukraine	inflation
New Taiwan dollar	40000	Taiwan dollars	1949	Taiwan (Republic of China)	inflation	"new" is an official designation and is still used in official documents
Second Renminbi yuan	10000	First Renminbi yuan	1955	China (Peoples Republic of China)	inflation
Peso argentino	10000	Peso ley	1983	Argentina	inflation
Peso (convertible)	10000	Austral	1992	Argentina	inflation
Polish złoty	10000	Polish złoty	1995	Poland	inflation
Leu	10000	Romanian Leu	2005	Romania	inflation
New Ghanaian cedi	10000	Cedi	2007	Ghana	inflation
Azerbaijani new manat	5000	(old) manat	2006	Azerbaijan	inflation
Turkmenistani new manat	5000	(old) manat	2009	Turkmenistan	inflation
Real	2,750	Cruzeiro real	1994	Brazil	inflation	Anchor currency: United States dollar
Cruzeiro (antigo)	1000	Real (old)	1942	Brazil	inflation
Cruzeiro (novo)	1000	Cruzeiro (antigo)	1967	Brazil	inflation
Austral	1000	Peso argentino	1985	Argentina	inflation
Cruzado	1000	Cruzeiro (novo)	1986	Brazil	inflation
Cruzado Novo	1000	Cruzado	1989	Brazil	inflation
Cruzeiro real	1000	Cruzeiro (third)	1993	Brazil	inflation
New Shekel	1000	Shekel	1986	Israel	inflation
Russian Rouble	1000	Rouble	1998	Russia	inflation
Belarussian Rouble	1000	Rouble	2000	Belarus	inflation
New Mozambican metical	1000	(old) meticais	2006	Mozambique	inflation
Bolivar Fuerte	1000	(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	1000	(first) dollar	2006	Zimbabwe	inflation
Zimbabwe Third Dollar	10000000000	Zimbabwe Second Dollar	2008	Zimbabwe	Hyperinflation
Zimbabwe Fourth Dollar	1000000000000	Zimbabwe Third Dollar	2009	Zimbabwe	Hyperinflation

References

^ A law of the abolition of currencies in a small denomination and rounding off a fraction, July 15, 1953 Law No.60 (小額通貨の整理及び支払金の端数計算に関する法律, Shōgakutsūka no seiri oyobi shiharaikin no hasūkeisan ni kansuru hōritsu))
^ "Finance Ministry and National Bank decide to slash four zeroes from ROL's tail | Ziarul Financiar". Zf.ro. 29 January 2004. Retrieved 6 January 2010. ^{[dead link]}
^ Pegged to the Deutsche Mark upon renomination, but subsequently subject to drift

@@ Line 10: / Line 10: @@
 A [[decimal currency]] is a currency where the ratio between the main unit and the subunit is an integral [[Exponentiation|power]] of 10. [[Non-decimal currencies]] are now rare but had some advantages in daily life transactions.  For example, 1 [[South German gulden|South German Gulden]] = 60 [[Kreuzer]]. 60 can be divided into 2, 3, 4, 5, 6, 10, 12, 15, 20 or 30 parts that are still [[integer]]s, making pricing easy. This advantage (in an age without mechanical or electronic calculators) and the lack of widespread accurate weighing apparatus (meaning an item might sometimes simply be divided in 2,4,6 etc.) coupled with tradition were the reasons why non-decimal currencies were used.
-In theory, two countries currently use non-decimal currency: Mauritania (1 ouguiya = 5 khoums) and Madagascar (1 ariary = 5 iraimbilanja).  In practice, however, the value of the main unit in each case is so low that the sub-unit is not of any practical use.  The last major countries to use non-decimal currencies in practice were the United Kingdom (until 1971), Ireland (1971), Malta (1972) and Nigeria (1973).
+In theory, two countries currently use non-decimal currency: Mauritania (1 ouguiya = 5 khoums) and Madagascar (1 ariary = 5 iraimbilanja).  In practice, however, the value of the main unit in each case is so low (less than 1/1000 of a United States dollar) that the sub-unit is not of any practical use and is rarely seen in circulation.  The last major countries to use non-decimal currencies in practice were the United Kingdom (until 1971), Ireland (1971), Malta (1972) and Nigeria (1973).
 ==Choice of name==