monetary economics Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions (such as medium of exchange, store of value and unit of account), and ...

, redenomination is the process of changing the face value of

banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes were originally issued ...

s and

coin A coin is a small, flat (usually depending on the country or value), round piece of metal or plastic used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order t ...

s in circulation. It may be done because

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

has made the

currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...

unit so small that only large denominations of the currency are in circulation. 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 changing over to a new currency such as the

Euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...

or during decimalisation. Redenomination itself is considered symbolic as it does not have any impact on a country's exchange rate in relation to other currencies. It may, however, have a psychological impact on the population by suggesting that a period of

hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...

is over, and is not a reminder of how much inflation has impacted them. The reduction in the number of zeros also improves the image of the country abroad. Inflation over time is the main cause for the

purchasing power Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...

of the monetary unit decreasing; but there are a variety of political reasons for the government not reining in inflation or for not redenominating the currency when its value has depreciated significantly. There are some economic and social benefits of redenominating, including improved efficiency in processing routine transactions. Redenomination typically involves the substitution of new banknotes in place of the old ones, which usually cease being

legal tender Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in ...

after the end of a short transition period.

Inflation

In general, redenomination is implemented in response to

, which progressively increases the nominal prices of products and services, decreasing the real value of the monetary unit in the local market. Over time, prices become excessively large, which can impede routine 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 Psychology is the scientific study of mind and behavior. Psychology includes the study of conscious and unconscious phenomena, including feelings and thoughts. It is an academic discipline of immense scope, crossing the boundaries between ...

does not handle large numbers well. Authorities may alleviate this problem by redenomination: introducing a new unit that 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 Power most often refers to: * Power (physics), meaning "rate of doing work" ** Engine power, the power put out by an engine ** Electric power * Power (social and political), the ability to influence people or events ** Abusive power Power may a ...

of 10 like 100, 1000 or 1 million, and the procedure can be referred to as "cutting zeroes". Recent examples of redenominations include: Although the ratio is often a positive integral power of 10 (i.e., removing some zeros), sometimes it can be ''a'' 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 In macroeconomics, hard currency, safe-haven currency, or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's ''hard'' status might include the stability and ...

. As a result, the ratio may not be based on an integer. Examples include In the case of

, the ratio can go as high as millions or billions, to a point where

scientific notation Scientific notation is a way of expressing numbers that are too large or too small (usually would result in a long string of digits) to be conveniently written in decimal form. It may be referred to as scientific form or standard index form, o ...

is used for clarity or

long and short scales The long and short scales are two of several naming systems for integer powers of ten which use some of the same terms for different magnitudes. For whole numbers smaller than 1,000,000,000 (109), such as one thousand or one million, the t ...

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

All countries that previously had currencies based on pounds-shillings-pence (

£sd £sd (occasionally written Lsd, spoken as "pounds, shillings and pence" or pronounced ) is the popular name for the pre-decimal currencies once common throughout Europe, especially in the British Isles and hence in several countries of the ...

) system (£1 = 20 shillings = 240 pence) have now adopted decimal currencies (currencies related by powers of 10), with several changing the name of the main currency unit at the same time. As of 2020, only two currencies are non-decimal, being the Mauritanian ouguiya and

Malagasy ariary The ariary ( sign: Ar; ISO 4217 code MGA) is the currency of Madagascar. It is notionally subdivided into 5 '' iraimbilanja'' and is one of only two non-decimal currencies currently circulating (the other is the '' Mauritanian ouguiya''). The nam ...

, with one of each divided into five subdivisory units.

Currency union

When countries form a currency union, redenomination may be required. The conversion ratio is often not a round number, and may be less than 1.

List of Euro redenominations

The most notable currency union today is the

Eurozone The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro ( €) as their primary currency and sole legal tender, and have thus fully implemented EMU polici ...

. In 2002, euros in cash form were introduced.

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 and joining the Eurozone, already listed on the table above.

Alternatives

Japanese invasion money Japanese invasion money, officially known as Southern Development Bank Notes ( ''Dai Tō-A Sensō gunpyō'', "Greater East Asia War military scrip"), was currency issued by the Japanese Military Authority, as a replacement for local currency afte ...

suffered from heavy inflation. At the end of

World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...

governments of liberated countries and territories opted to simply declare them worthless. In 2016, the Colombian peso was rated at around 3,000 per U.S. dollar, with banknotes up to 50,000 pesos. Instead of redenominating the currency, a new banknote design was introduced, with the last three zeroes replaced by the word "mil" (thousand), making the values easier to read.

References

{{Reflist Currency Decimalisation Inflation Numismatics