Redenomination

Redenomination is the process of changing the face value of banknotes or coins used in circulating currency. It may be done because inflation has made the currency unit so small that only large denominations of the currency are circulated. In such cases the name of the currency may change or the original name may be used with a temporary qualifier such as "new". Redenomination may be done for other reasons such as adopting a new currency as with the Euro or decimalization. The article deals with these various types of redenomination in detail.

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

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

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

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 which kind of billion or 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 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.

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.

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.

List of Euro redenominations

List of currency redenominations

This table lists various currency redenominations that have occurred, including currency renaming where the conversion rate is 1:1, but excluding decimalisation.

See also

• Decimalisation
• Denomination (currency)
• Devaluation
• Dollarization
• Hyperinflation
• Inflation

References