In monetary economics, redenomination is the process of changing the face value of banknotes and coins in circulation. It may be done because inflation has made the currency 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 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 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 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 after the end of a short transition period.
Inflation In general, redenomination is implemented in response to hyperinflation, 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 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 of 10 like 100, 1000 or 1 million, and the procedure can be referred to as "cutting zeroes". Recent examples of redenominations include:
New unit = × Old unit Year Argentine peso (ARP) = 10 000 Argentine peso ley (ARY) 1983 Argentine austral (ARA) = 1 000 Argentine peso (ARP) 1985 Argentine peso (ARS) = 10 000 Argentine austral (ARA) 1992 New Polish złoty (PLN) = 10 000 old Polish złoty (PLZ) 1995 Fourth Romanian leu (RON) = 10 000 third Romanian leu (ROL) 2005 New Mozambican metical (MZN) = 1 000 old metical (MZM) 2006 Second Zimbabwean dollar (ZWN) = 1 000 first dollar (ZWD) 2006 Third Zimbabwean dollar (ZWR) = 10 000 000 000 second dollar (ZWN) 2008 Fourth Zimbabwean dollar (ZWL) = 1 000 000 000 000 third dollar (ZWR) 2009This table is not exhaustive.
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: New unit = × Old unit Year German Rentenmark = 1 000 billion Papiermark 1923 Chinese gold yuan = 3 million old yuan 1948 = 500 million Chinese gold yuan 1949 New Taiwan dollar = 40 000 old dollar 1949 Azerbaijani new manat = 5 000 old manat 2006This 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 = × 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 = Deutsche Mark 24 January 1994 2nd Polish złoty = 1.8 million Polish marka = Swiss franc 1 April 1924This 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 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.
New unit = × Old unit year Nature of the new unit Turkish new lira = 1 million old lira 2005 "new" is an official designation and was 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 1942This table is not exhaustive.
Decimalisation
All countries that previously had currencies based on pounds-shillings-pence (£sd) 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, 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.
New unit = x Old unit year Monetary union Danish krone = 0.5 Danish rigsdaler 1873 Scandinavian Monetary Union Gulden österreichischer Währung = 20/21 Gulden Conventions-Münze 1858 Wiener Münzvertrag between the states of the German Customs Union and the Austrian EmpireThis table is not exhaustive.
List of Euro redenominations The most notable currency union today is the Eurozone. In 2002, euros in cash form were introduced.
Country Old unit Exchange rate Year Belgium Belgian franc 40.3399 1999 Luxembourg Luxembourgish franc 40.3399 1999 Germany Deutsche Mark 1.95583 1999 Andorra, Spain Spanish peseta 166.386 1999 Andorra, France, Monaco French franc 6.55957 1999 Ireland Irish pound 0.787564 1999 Italy, San Marino, Vatican City Italian lira 1936.27 1999 Netherlands Dutch guilder 2.20371 1999 Austria Austrian schilling 13.7603 1999 Portugal Portuguese escudo 200.482 1999 Finland Finnish markka 5.94573 1999 Greece Greek drachma 340.75 2001 Slovenia Slovenian tolar 239.64 2007 Cyprus Cypriot pound 0.585274 2008 Malta Maltese lira 0.4293 2008 Slovakia Slovak koruna 30.126 2009 Estonia Estonian kroon 15.6466 2011 Latvia Latvian lats 0.702804 2014 Lithuania Lithuanian litas 3.4528 2015 Croatia Croatian kuna 7.5345 2023 Bulgaria Bulgarian lev 1.95583 2026
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.