In violation of the stability of the financial system in the country, various methods of monetary reform are used. Transformations are aimed at radical elimination of the shortcomings that arose in it. The government is moving towards the use of a stable financial unit, which is characterized by stable purchasing power. This ensures the development of relations inherent in a market economy.
Let us further consider the main methods used in monetary reforms.
General information
Methods of implementing monetary reforms, their characteristics are determined by regulations aimed at stabilizing the financial system. In the process of transformation, impaired banknotes are withdrawn and new ones are issued in exchange.
Within the framework of reforms, the monetary unit or its gold content may change, and a transition from one financial scheme to another may be carried out. At the same time, the transformations affect both cash and non-cash circulation. Meanwhile, no method of conducting monetary reforms guarantees the stability of the new financial instrument in the future.
In this regard, after the transformation, the implementation of certain supporting measures is necessary. A significant role in this process is played by financial and credit policy. It should be justified and aimed at regulating the scope of cash and cashless circulation.
Classification
The methods of monetary reform include techniques that, to one degree or another, can affect the state of the financial system. In science, several methods of stabilization are distinguished. In particular, the following methods of monetary reform are distinguished:
- Diversification. It represents the policy of the state and banks, focused on the regulation of the foreign exchange reserve structure. This process is carried out by connecting various financial instruments to ensure international settlements and protection against losses. As a rule, measures involve the implementation of unstable units and the acquisition of more stable ones.
- Nullification. This technique involves announcing the cancellation of an impaired financial unit and introducing a new instrument in its place.
- Devaluation. It consists in changing the national currency against the foreign one, accompanied by a decrease in the purchasing power of the monetary unit.
- Denomination. This method of monetary reform involves changing the face value of a financial instrument. Usually it is performed subject to the replacement of the previous unit in a certain ratio with the entered.
- Revaluation. It involves the restoration of the previously existing gold content of the unit of account.
There are other methods of monetary reform. Deflation, for example, involves the removal of excess banknotes from circulation. This allows you to reduce the amount of money in circulation.
Transformation specifics
The development of the country's monetary sphere is reflected in monetary reforms, the prerequisites for their implementation, goals and results. The key objective of the reforms is to streamline the circulation of financial instruments and strengthen the entire system.
Methods of monetary reform are selected depending on various factors:
- production method;
- specifics of the political structure;
- the provisions of certain classes in society;
- general state of the economy in the state.
Existing methods of monetary reform involve the removal of all or a certain proportion of paper signs, replacing them with new ones, restructuring the entire financial and credit sphere, changing the exchange rate and so on.
Nullification
The name of this method has Latin roots. It comes from the words nullus - "nonexistent", "no" and facio - "do." Monetary reform as a method of combating inflation is used by the government, as a rule, only in extreme cases. And nullification is carried out in a situation of deep economic crisis.
It can be caused by the need to withdraw banknotes that have lost the force of a legitimate settlement instrument. Such a situation arises, as a rule, during a change in political power. In some cases, nullification coincides with devaluation. At the same time, there is an exchange of depreciated old-style signs for new ones at a reduced rate.
This method of conducting monetary reforms is relevant in cases where the economic crisis has reached such an indicator that the cost of a paper unit of account is practically reduced to zero.
Denomination
This name also comes from the Latin word nominatio, which means "name."
Methods of monetary reform include measures to change the nominal price of settlement instruments with the exchange of old signs for new ones in a certain ratio. In the same proportion, recalculation of tariffs, prices, wages, etc.
Denomination is usually used to stabilize the circulation of money during inflation. However, this technique can also contribute to the simplification of the settlement system. In fact, denomination is a way of strengthening the monetary unit by the state.
The enlargement of the price scale occurs by striking out zeros. The devaluation in Russia was carried out on August 17, 1998. The enlargement occurred almost 4 times - instead of 6.1 rubles. for $ 1, 24 rubles were established.
Terminology features
The concepts used in characterizing changes in the unit of account do not in all cases make it possible to accurately assess the essence of measures. For example, denomination usually means a reduction in the nominal expression of issued financial instruments. This characteristic is acceptable for the analysis of reforms that have taken place in Russia.
In particular, this definition refers to the denomination of 1922. The ruble issued that year replaced the 1, 000 characters previously issued. A similar characteristic of the denomination is also applicable to the 1923 reform. This year, the issued settlement marks were correlated with the issued units in 1922 as 1: 100.
In 1961, a new replacement was made. Previously issued money was exchanged for new in the ratio of 10 to 1 unit issued in 1961. This measure was reduced to changing the nominal value of the settlement instrument. This was important mainly for financial turnover within the state. Meanwhile, along with the denomination, the gold content of the unit of account was reduced by 4.5 times. This measure was assessed as independent and related mainly to operations with foreign countries.
The denomination is not given exactly enough in the Decree of the President, approved on 08/04/1997. It is a way to "cross out zeros." In 1998, the country was denominated in a ratio of 1: 1000. The decree provided for a change in the nominal value of signs, but not the monetary unit. At the same time, denomination, in its essence, applies not only to cash, but also to financial instruments used in non-cash transactions.
Effects
In the crisis conditions of 2009, a gradual depreciation of the ruble caused an increase in the value of 1 US dollar. With this change, certain negative consequences arise. In particular:
- Increased interest in increasing exports. This is due to the fact that for a unit of foreign exchange profit, you can get a large ruble amount.
- Increasing the cost of production in domestic markets. This is especially noticeable in relation to imported goods. This, in turn, negatively affects the material condition of the population.
- Decrease in the value of ruble savings.
- Deterioration of the terms of delivery of foreign equipment.
All these consequences should be taken into account by the government choosing the methods of monetary reform. As part of the reforms, it is necessary to provide measures to eliminate the negative phenomena of the depreciation of the ruble exchange rate both for the population and for enterprises.
Devaluation
This name comes from the Latin devalvatio. In this word, the prefix de means moving down, and valeo means "I stand, " "I mean."
Methods for conducting monetary reform include measures to officially lower the price of a unit of account. She accompanied the transformation of the financial system during the functioning of metal signs. In this case, devaluation was carried out by legislatively reducing the gold content of a financial unit or by reducing the rate of banknotes relative to foreign currency or gold.
In modern conditions, the use of this method indicates a crisis in the country's monetary sphere, the depreciation of money, or a significant (long-term) balance of payments deficit.
With the devaluation, export is encouraged, but at the same time the size of the external debt of the state increases, the cost of imported products increases. As a result, political and economic contradictions existing in the economic system are aggravated.
Revaluation
One of the methods of monetary reform is to limit the flow of speculative foreign capital into the country. Revaluation (restoration) allows you to restrain the increase in the money supply and slow down the increase in prices in domestic markets.
For example, after the First World War in England, in 1925-1928, the government restored the gold content of pounds that existed before the war. The revaluation was carried out by increasing the official exchange rate of the national currency against the dollar.
Transformations in Russia 1895-1997
In the indicated period, monetary reform was carried out by S. Yu. Witte. The transformations were caused by:
- Instability of the financial system of the country.
- Underdeveloped foreign and domestic economic relations.
- Abolition of serfdom. Due to the adopted law, a lot of free population appeared in the country.
- Feudal backwardness of the state against the background of the capitalist development of Europe.
- The lack of foreign capital.
Witte's monetary reform was carried out by devaluation. The gold content of the unit of account was reduced by 1/3. The gold ruble was considered a coin sign. The State Bank formed cash, the amount of which amounted to 1095 million rubles. At the same time, the named financial institution was able to issue banknotes. Their amount was to amount to 1121 million rubles. and be provided with formed gold cash. As a result of the transformations:
- The circulation structure of financial instruments has changed significantly for the better.
- The ruble managed to occupy the first position among all the currencies of free conversion. At the same time, he overtook the US dollar and pound sterling.
- Foreign funds began to flow into the country.
- Russia was recognized as a reliable and solvent economic partner and embarked on a capitalist track.
Important point
It should be noted that the importance of factors in conducting monetary reforms is not the same. Often, only if all the necessary conditions are met, the transformations can become successful. In the case of Witte's reforms, the necessary prerequisites existed in the form of production growth and an almost deficit-free budget. But since the transformations provided for the transition to a free exchange of banknotes for gold, the need to form an appropriate stock was of particular importance. To achieve this goal, the slogan "Do not eat, but take out." And thanks to export, the necessary capital was accumulated.
Transformations of 1922-1924
This reform was aimed at eliminating the negative consequences caused by the Civil and World War I. The key objective was to remove the rapidly depreciating unit of account from circulation. In the years 1922-1924. there were no necessary prerequisites for the transformation, but there were conditions that required reform.
These factors were that in circulation, the mass of foreign currency began to prevail over the number of national settlement symbols. The transformation began with the release of the chervonets. In the absence of the necessary conditions, the reform was completed only in 1924.
Here it is necessary to note the importance of production growth. The share of agricultural products has increased especially. This factor has had a beneficial effect on the course of transformations. At the same time, the government had at its disposal a rather large gold and foreign exchange reserve, but there was also a significant budget deficit. It was the need to overcome it that affected the duration of the transformations.
General prerequisites
The country's historical experience in implementing monetary reforms allows us to identify three key factors for their successful implementation:
- Production growth. It provides an increase in supply and a limitation of higher prices for products. While maintaining the stability of the unit of account, these factors are of paramount importance.
- Lack of budget deficit. It allows not to use money emission and not to attract credit funds to cover expenses. Due to this, solvent demand is limited and its likely impact on price increases.
- The presence of a sufficient amount of gold and foreign exchange reserves. It allows you to maintain the stability of the national currency, if necessary, ensure the import of products and increase its offer in the markets.
