As a result of the galloping rise in prices in the country, and, accordingly, the depreciation of national money, leading analysts and financiers decide to carry out a monetary reform in order to strengthen and streamline the circulation of the national currency of the state. One of the components of this reform is the denomination of the monetary unit.
What is denomination
Denomination is the process of strengthening the monetary unit of the state, and reducing the real value of money by replacing the existing denomination with a lower one in a certain ratio, while at the same time there is a recalculation of tariffs, wages and pensions for the population. A simpler definition of denomination is “crossing out zeros” on banknotes. This is due to active hyperinflation, which, in connection with the rise in consumer prices, entails the forced issue of banknotes of a larger denomination. To return value to money, and to simplify the process of nominal turnover, they resort to denomination. The seizure of old-style banknotes helps to reveal the hidden incomes of many citizens who do not pay taxes to the budget when earning money. In the process of reform, they are forced to take out their savings and exchange.
Types of denomination of the ruble
The main types of denomination of the ruble are: revaluation (restoration), nullification and devaluation.
Revaluation (restoration) implies the restoration of the financial system of the state by increasing the solvency of the ruble. It restricts the import of speculative foreign capital into the country, which restrains the increase in the mass of money in circulation, and slows down the growth of prices in the domestic market.
Nullification is the withdrawal of a monetary unit that currently exists, and its replacement with a new one, while the previous currency unit is canceled. This type of reform is applied in several cases:
- if there has been a sharp decline in the purchasing power of the national currency as a result of deep inflation, and the cost of paper money is practically reduced to zero;
- when the political power of the state changes, the means of payment loses legal force.
Devaluation is an official forced measure to reduce the gold component of a monetary unit, or change its relationship with the exchange rate. Devaluation legally fixes the depreciation of the ruble against the backdrop of inflation.
Denomination in Russia
The main characteristic of the denominations that were carried out in Russia is the decrease in the nominal designation of banknotes in circulation. For example, 1 ruble of 1922 issue replaced 1000 units of banknotes issued earlier, or new samples of 1923 had a ratio of 1: 100 to those of 1922.
To ensure the optimal monetary turnover of the state in 1961, a denomination was also carried out in the form of a change in the nominal currency unit, and previously issued banknotes were exchanged for new ones in a ratio of 10: 1. Simultaneously with this process, it was decided to reduce the gold component in monetary terms by 4.5 times. This was due to the need to ensure the stabilization of the national currency when conducting financial transactions with foreign countries.
1998 in Russia was marked by the denomination of not the monetary unit, but the real value of banknotes, as a result of which the exchange of the national currency was carried out in the ratio of 1: 1000 rubles of the old model. This allowed the state to eliminate the external economic imbalance, obtain a more competitive economy, lower the level of prices in the domestic market in comparison with the world ones, and significantly reduce currency risks.
Historical evidence confirms that there are positive preconditions for the successful implementation of denominations. First of all, this is an increase in production, as a result of which an increase in the supply of products limits the likelihood of price increases. This has a primary impact on the stable position of the national currency. The budget surplus makes it possible to abandon the use of emission and external loans, and a sufficient gold and foreign exchange reserve ensures a stable exchange rate of the national unit.
