Iraqi Dinar Discussion Board

[Aerospace]

Iraq wants to join the GCC currency... so...

“Re-domination is a requirement for joining a common currency. In fact Romania in their preparation to join the European Union and start using the Euro, they re-dominated and dropped off four zeros from their currency. Turkey also had to re-dominate in order to bring the exchange to the dollar close to what pertains in the West African sub-region.http://www.ghanatoday.com/index.php?...icle&sid=20856

Conditions for Successful Re-denomination

* Re-denomination of a currency leads to significant efficiency gains and is very successful when undertaken:
o in the context of strong economic fundamentals
o in an environment of macroeconomic stability



* However, it fails when implemented under:
o high inflation regime
o unstable macroeconomic environment



* When it fails:
o The zeros will rebuild quickly
o It will require further re-denomination
o Benefits will be illusive
o Credibility will be lost





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Ghana: The Macroeconomic Situation

* Declining inflation
* Stable exchange rate
* Falling Interest Rates
* Strong GDP Growth
* Significant build up in GIR


* After achieving a macroeconomic stability including declining inflation and stable exchange rate, Ghana requires a simplification of the values of quantities expressed in monetary terms in order to:

(i) Simplify transactions and arithmetic calculations

(ii) Make a more efficient use of computer and accounting systems

(iii) Reduce the cost and overall risks of carrying large volumes of notes

(iv) Re-introduce of the culture of using coins in Ghana

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Survey of Re-denomination Operations (International Experiences)




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Survey of Re-denomination Operations

* Since 1960, over 70 operations of currency re-denomination have been undertaken in DTCs
* The operations have varied in size - from removing one zero (14 instances) to removing six zeros (9 instances)
* The median redenomination was three zeros i.e. dividing the currency by 1000
* Nineteen countries have used redenomination on one occasion, while ten have redenominated twice:
o Sometimes with many years in between (as in Bolivia, in 1963 and 1987)
o In other cases, re-denominations followed rather quickly (as in Peru in 1985 and 1991)
* Argentina (4), the former Yugoslavia/Serbia (5), and Brazil (6) are the most frequent users of redenomination
* The notable and recent cases are as follows:


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Survey of re-denomination operations

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ARGENTINA: Consumer Price Index (annual variation in percent)
(Red lines represent dates when currency conversions were implemented)


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* Re-denominations have often occurred after economic crises, as CBs attempt to convince citizens and markets that high inflation is a thing of the past.
* In some cases, the timing was right, in that re-denomination capped off high levels of inflation.
* In other cases, CBs were not able to reign in inflation immediately after redenomination, and had to make multiple efforts at currency reform.

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* For countries that seek to join regional currency unions, assuring international markets of their commitments is essential.



* Romania’s Central Bank for e.g., portrayed its re-denomination as indicating that the days of hyper-inflation were over and the new currency would help keep things that way.



* It said Romania had a goal of joining European Monetary Union (EMU) by 2012, and a currency that was worth 29,890 to the dollar was seen as an impediment to doing so.



* Similarly, one of the motivations for Turkey’s re-denomination came from its interest in joining the EU (FT, 22 December 2004).



Re-denomination, WAMZ & the ECO
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* In this regard, re-denomination has been used to help meet requirements for joining a currency union.
* While it is high inflation that adds zeros to the value of currencies, the presence of low local currency/dollar exchange rates, especially in relation to the currencies of the potential members of the currency group, is one of the most obvious signs to a central bank going into a monetary union of the need for re-denomination.


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Can't find a single thing about RVs of 100,000%