Redenomination

What Is Redenomination?

Redenomination is the recalibration of a country's currency, regularly due to hyperinflation and currency devaluation, by which an old currency is exchanged for another one at a fixed rate.

Figuring out Redenomination

While huge inflation is the principal justification behind a country to redenominate its currency, different reasons incorporate decimalization or joining a currency union. At the point when redenomination happens, old banknotes and coins are ordinarily removed from circulation and another currency is issued. Sometimes, the old currency keeps on circulating at a fixed value against the new notes.

At the point when redenomination happens, another value is laid out for the new banknotes and coins. For instance, in 2006, Zimbabwe redenominated its currency at a rate of 1,000 old Zimbabwe dollars to one new Zimbabwe dollar.

At the point when hyperinflation is involved, redenomination becomes important in light of the fact that it requires too numerous old notes to work with commerce. Small bills basically become futile in the event that you want a wheel barrel of them to buy a portion of bread.

Redenomination may likewise happen when a country joins a currency union, for example, the eurozone, and begins utilizing a currency like the euro rather than its own. At the point when the euro was presented in 1999, the member countries first involved the new currency in quite a while and accounting. They then, at that point, changed from their domestic bills and coins to the euro in 2002.

This cycle is in effect a redenomination on the grounds that the value of the country's banknotes is evolving. For instance, the Irish pound was changed over at a rate of 0.787564 pounds per euro.

Initially, 12 countries adopted the euro in 1999, with the Deutsche mark (DEM), Spanish peseta, and French franc (F) among the biggest currencies removed from circulation. Starting around 2021, there are 19 nations that utilization the euro.

Illustration of Redenomination

Presumably the most well known redenomination has been the Zimbabwean dollar, which circled in Z$100 trillion bills — the biggest denomination of currency at any point issued — because of an annual inflation rate of in excess of 231 million percent.

The Zimbabwe government redenominated its currency several times starting in 2006. In that year, the country's most memorable currency reform was sent off with an end goal to contain inflation. The Zimbabwean dollar was redenominated at a rate of 1,000 to one.

Yet, inflation stayed at galactic levels. To keep pace, a Z$750,000 note was presented in 2007. By the beginning of 2008, notes were circulating in Z$1 million, Z$5 million and Z$10 million denominations. Those face sums were immediately predominated by a series of ever bigger new bills. In July 2008, the government issued a Z$100 billion note, which could buy around three eggs at that point.

Zimbabwe went through various currency redonimations in its endeavors to contain inflation before officially leaving the Zimbabwean dollar in 2015.

In August 2008, the government sent off another redenomination. Old notes could be exchanged for new ones at a rate of 10 billion to one. Inflation proceeded unabated, and new issues of currency with amazing face sums kept on showing up. In January 2009, Z$10 trillion, Z$20 trillion, Z$50 trillion, and Z$100 trillion notes were issued.

In February 2009, the government redenominated a third time. Old currency could be exchanged for new currency at a rate of one trillion to one. By then, the vast majority had stopped the Zimbabwe dollar for the [U.S. dollar](/usd-US dollar) and South African rand (ZAR).

Zimbabwe adopted a multicurrency system and dollarization in 2009. In 2015, the country officially abandoned the Zimbabwean dollar through and through. Bank accounts that held up to Z$175 quadrillion were paid a flat $5 USD. Bank accounts with sums above Z$175 quadrillion were given $1 USD for each Z$35 quadrillion held.

Features

• Hyperinflation, decimalization, or a country joining a currency union are a portion of the reasons that a currency might go through redenomination.
• Redenomination is the point at which the value of a currency is recalibrated due to a substantial change in the buying power of the currency.
• In a redenomination, old notes are exchanged for new ones at a fixed exchange rate.