Denomination is an economic term that means a change in the nominal value of money. The need for it, as a rule, arises after hyperinflation in order to stabilize the currency and simplify settlements as much as possible. Most often, during the denomination, an exchange of old money for new, in which the face value is less, occurs. In this case, old banknotes are withdrawn from circulation.
The essence of the concept
Speaking in the simplest words, a denomination is a replacement of old banknotes with new ones with a lower denomination. As a rule, several zeros are removed at once. Using this procedure, the state heals and updates the financial system of the whole country.
The essence of the denomination is to achieve these effects:
- end of hyperinflation;
- reduction of expenses for subsequent cash issue;
- stabilization of the financial system;
- increase in exports of domestic goods;
- simplification of calculations and getting rid of excessive money supply that has accumulated in the country;
- application of new developments in the field of protecting the national currency from counterfeiting;
- a decrease in the physical volume of the money supply;
- strengthening the national currency.
Causes
The main reason for the denomination is hyperinflation, which before this happens in the economy. At this time, the monetary unit significantly loses in value. As a result, all the calculations in the country have to be carried out in huge amounts, which is extremely inconvenient. Denomination is the ability to solve many problems at once.
The money supply is growing day by day, the government has to constantly turn on the money machine, issue banknotes, the face value of which is constantly growing. It is very inconvenient, inefficient and costly. So denomination is, in simple words, a way to eliminate all these problems, restart the economy, as if to start life from scratch.
Reform progress
It is worth noting that the denomination does not occur simultaneously, but is stretched in time. After its official announcement for a period in the country, it becomes possible to pay both old and new bills. But how much time it will be possible to exchange old bills for new ones, the government determines. Typically, this is from six months to one year. Throughout this period, exclusively new banknotes are issued in public and private commercial institutions.
Negative consequences
It is obvious that denomination is an attempt by the government to improve the economy and bring it to life. But it is worth noting that it does not always lead to positive consequences. A negative effect is also possible.
In the economy, there have been many cases when such changes led to an increase in loans issued in foreign currencies, an increase in the cost of imported goods, problems with the import of equipment, which, as a rule, affect large and medium-sized producers. Difficulties are also possible if you keep large savings in banknotes that are being withdrawn from circulation. Often it is not possible to quickly exchange them for new money.
Which countries are deciding on such changes?
It is worth noting that the word "denomination" is familiar to residents of almost all modern states. At any stage of its development, any economy faced difficulties, a way out of which had to be sought, taking the most effective measures.
A particularly difficult economic situation in many countries arose after the end of World War II. For example, it was then that the denomination was carried out in Poland and France, in the Soviet Union during the Soviet period they resorted to denomination three times - in 1922, 1947 and 1961. Twice more it happened in the history of already modern Russia - in 1991 and 1998.
From recent examples, we can recall the denomination in Belarus in 2016. Then the local Belarusian rubles lost four zeros at a time. One new Belarusian ruble began to equal 10 thousand old. Also, coins appeared in circulation, which before that the country simply did not have, all the money was exclusively paper. This has led to positive consequences for the Belarusian economy. The huge excess money supply was able to be withdrawn from circulation, the system of settlements made was much easier. As a rule, most denominations lead to such consequences.
1922 year
For the first time, the ruble was denominated in the USSR in 1922. It is worth noting that then this reform was caused not only by economic, but also by political reasons. The young Soviet government sought to replace the tsarist money in circulation with new Soviet money.
Then, as in Belarus, four zeros were removed immediately. 10 thousand old rubles corresponded to one new. Interestingly, there was no coin exchange at the same time, because metal money in the Soviet Union was not issued at all until 1921. As a result, Soviet banknotes circulated in parallel with the royal chervonets until 1924. Only this year the ruble denomination was finally completed. So the citizens were given plenty of time to exchange all their old bills with the new type of money.
They again had to resort to denomination shortly after the end of World War II. In 1947, the denomination became a project of the Minister of Finance of the USSR Arseniy Zverev. He stayed in this post until 1960, remaining one of the most respected Soviet officials in these decades.
That year, the denomination was carried out at a rate of ten to one. As a result, ten old rubles corresponded to one new ruble. At the same time, prices fell in the country, but the procedure for determining them, as well as salaries and other payments, remained at the same level. For this reason, not all economists consider this reform of Zverev to be a pure denomination. This remains a debatable issue.
A certain part of researchers adheres to the point of view that this reform has more signs of a confiscation reform. During this period, all coins issued on the territory of the Soviet Union from 1923 to 1947 were in circulation without changing their value. Money deposited in savings banks was exchanged according to this principle:
- up to 3, 000 rubles at the rate of 1: 1 (these were about 90 percent of all deposits);
- from 3 to 10 thousand rubles - with a ratio of 3: 2;
- deposits of more than 10 thousand rubles - with a ratio of 2: 1.
This is about citizen contributions. The money that was in the accounts of enterprises and collective farms was exchanged 5: 4. Moreover, the amount did not matter. Unlike the previous denomination, very little time was given for the exchange - from December 16 to 29. Already on December 29, all the old money was reset.
1961 year
In 1961, the Soviet government held a full-fledged denomination at the rate of 10: 1. 10 old Soviet rubles corresponded to 1 new. At the same time, coins in denominations of 1, 2, and 3 kopeks remained in circulation without changing the value (this also included coins issued before 1947). Interestingly, this led to the fact that in just 13 years the value of copper money has grown 100 times.
With regard to other cash, the rules were as follows: coins of 5, 10, 15 and 20 kopecks were changed according to the rules of paper money - 10: 1. Coins of 50 kopecks and 1 ruble were introduced, which until then were in circulation only until 1927.
At the same time, the Soviet government artificially set the exchange rate. For one dollar, which before the denomination cost 4 rubles, a price of 90 kopecks was announced. The gold content turned out to be in the same situation. This led to the fact that the ruble was underestimated more than twice, and its purchasing power in relation to imported goods decreased by the corresponding amount.
1991 year
In modern Russia, denomination was first held in 1991. Then, denominations of 50 and 100 rubles were withdrawn from circulation. This was done very unexpectedly. The signing of the decree was announced on January 22 at 21.00, when almost all shops and institutions were closed. In total, three days were given for the exchange - until January 25. Banknotes of 50 and 100 rubles were exchanged for smaller banknotes of the 1961 sample or for new ones with the same denomination.
At the same time, no more than a thousand rubles were allowed to be exchanged per citizen. If there was more cash on hand, then the possibility of its exchange was considered by a special commission. At the same time, the amount of money available for withdrawal at savings banks was limited. It was forbidden to withdraw more than 500 rubles a month. The conditions in which citizens were placed, many called draconian, the reform caused strong discontent.
