MINISTRY OF FINANCE REPUBLIC OF INDONESIA
THE EDUCATION AND TRAINING BOARD OF THE MINISTRY OF FINANCE
STATE COLLEGE OF ACCOUNTING
CONTEMPLATION OF CURRENCY REDENOMINATION AS A SOLUTION OF ECONOMIC PROBLEMS IN DEVELOPING COUNTRIES
SANDA ADITYA ARSANDI
Alhamdulillahirabbilalamin, finally my English paper can be completed. First, I would like to thank to Alloh SWT for all gift I have got. Whether it was leisure time, healthy, opportunity, and many others, I am really helped because of your easiness, God.
This English paper used to fulfill some of requisites to pass English subject in 5th semester in State College of Accounting 2011. Beside that, this paper is a medium to boost the writer knowledge and writing ability.
In this chance, I would like to say thank you for:
1. My mother and all of my family, especially my sister, which always give abundant love for every step I take. I hope someday can give more to all of you.
2. Mr. Ahmad Waran, as my English lecturer. I wish we (3U Accounting) could realize your hope, seeing us continue our master abroad. For me my self, I still confuse whether Queensland, Illinois, or Singapore.
3. My beloved friends in 3U, 2H, and 1G Accounting. It was an unforgettable moments can take a part experience three year with them. You rock guys!
4. My siblings. Dani Setiahadi, Dwi Sriwahyuni, Rafika Wilda, Surya Setipanol, and Fitri Ani Nur Mushlihatun. For every second you cheer me.
5. And all lecturer and employee in this dream college.
I believe there are a lot of mistakes inside this paper. That is why, I beg for your apologize and I hope this paper can be usefully give some idea about redenomination.
Tangerang, 10 February 2011
Sanda Aditya Arsandi
DRAFT OF APPENDIX
CHAPTER 1 INTRODUCTION
B. Writing Objective
C. Problem Limitation
D. Method of Source Collection
E. Writing Systematic
CHAPTER II SOURCES AND FACTS
A. General Description about Developing Countries
1. Classification of a Country
2. Definition of Developing Countries
3. Measure and Concept of Development
4. Example of Developing Countries
B. General Description about Currency
1. Definition of Foreign Currency
2. Foreign Currency Concepts
(a) Direct and Indirect Quotation of Exchange Rates
(b) Floating, Fixed, and Multiple Exchange Rates
3. Foreign Currency Transactions
C. General Description about Economic Problems
CHAPTER III REDENOMINATION OF A CURENCY AS A SOLUTION OF ECONOMICS PROBLEMS IN DEVELOPING COUNTRIES
A. Redenomination Theory
B. Factors influencing Redenomination Credibility
CHAPTER IV CONCLUSION AND SUGGESTION
DRAFT OF APPENDIX
APENDIX 1: List of emerging and developing economies
APENDIX 2: Table 1: NAME OF CURRENCY
APENDIX 3: List of countries by Gross National Income per capita in 2009
APENDIX 4: Table 2: Inflationary Episodes and Redenomination Outcomes
Since 1960, governments of developing and transition economies have redenominated their currencies on approximately seventy occasions. These redenomination generally involve reducing the value of the currency by a factor of ten. For instance, in January 2005, Turkey replaced its currency (the Lira) with the .New Turkish Lira (YTL), with a conversion rate of one million old liras to one new lira. And in July, Romania introduced a new, heavy version of its currency, the lieu, with four fewer zeros. In both cases, governments noted that redenomination would send a signal to citizens, as well as to the international community, that economic policy mistakes were in the past.
While decisions about the denomination and design of currencies may seem more technical than political, a government’s control and administration of its currency and, more broadly, of transactions within its boundaries -- is one of the hallmarks of the modern nation-state. Governments began to achieve such monetary control in the mid-nineteenth century; today, many struggle to maintain this control, particularly in the face of civil conflict or economic collapse. Currency redenomination, then, may come as part of a broad package of economic and political reforms, as was the case in Afghanistan in October 2002; following years of decline in the currency’s value, a new Afghani was introduced, with three zeros removed. This introduction was meant to herald, along with a series of other measures, the emergence of Afghanistan from years of civil conflict, and its movement toward modern nationhood.
Currency redenomination also can be a means by which governments attempt to reassert monetary sovereignty. If citizens lose confidence in the national currency, they may begin to use foreign currencies, particularly those with greater prestige. This may be both a psychological and an economic blow to the government: with widespread foreign currency substitution (or, more extremely, full dollarization), the central bank no longer controls the money supply, rendering it unable to provide lender of last resort functions (Cohen 2004). Economic policy is influenced not only by international capital markets (e.g. Mosley 2003), but also by foreign central banks. Currency redenomination, then, is a means by which governments can attempt to reverse this currency substituting behavior: if citizens are confident that the new Turkish lira will hold its value, they may be willing to shift from using Euros and dollars to using lira. While the act of dividing a currency’s value by a factor of ten is somewhat symbolic, it also can help to convince citizens of a currency’s worth. As a result, redenomination often occurs after economic crises, as governments attempt to convince citizens and markets that hyperinflation is a thing of the past. In some cases, the timing is correct, in that redenomination caps off high levels of inflation. In other cases, governments are not able to reign in inflation immediately after redenomination, and they may make multiple efforts at currency reform. Argentina and Brazil during the 1980s and early 1990s exemplify this pattern.
Yet not every country with high levels of inflation, or with a low local currency/dollar exchange rate (so that thousands of local currency units are required for everyday transactions), chooses to redenominate its currency. Some governments are content for citizens to spend two thousand lira or manta for a cup of coffee, even if this leads citizens to question the legitimacy of the local currency. In other cases, governments do choose to redenominate, but only after a sustained period during which inflation has been reigned in; the time between hyperinflation and redenomination, then, may stretch to over a decade. Were redenomination a purely technocratic exercise, this pattern would be surprising: redenomination seems to have few real costs, beyond the short-run expense of printing new notes and advertising the change to citizens and financial markets.
B. Writing Objective
The purpose that the writer wants to get is:
1. To fulfill pre requirement of final English assignment in 5th semester State College of Accounting 2011.
2. To add and improve knowledge about economics that become the main subject during study in State College of Accounting and also apply that esoteric knowledge in facts which is happened surroundings.
3. To know what is kind of economics problems in developing countries.
4. To assemble the fact about advantage of redenomination that is implemented in developing countries like Indonesia.
5. To analyze what kind of factors that decide critical success point for redenomination in a nation especially developing ones.
6. As a consideration and reference for all readers that has importance whit this paper.
C. Problem Limitations
In this paper, the writer limits the scope to the economics problems only that has relation with redenomination. Actually, there are a lot of economics problem that was faced by countries in this era, but to simplify of writing method, the writer just make some sample in developing nations. The sources are taken until 2010 condition because the writer had not found the newest source yet in internet or other literature.
D. Method of Source Collection
In arrange this paper, the writer use a method to get relevant and reliable source with problems that will be discussed in this paper. The method is Library Research that that the writer will try to collect, read, scans, and examines a lot of literature, research paper, article in website, and also lecturing material which has relation with this paper. Beside that, the writer enrich the Library Research method with ask any opinion from some experts in economics.
E. Writing Systematic
This paper divide into 4 headline chapter, i.e.:
CHAPTER I INTRODUCTION
This chapter contains the general description of paper like background, writing objective, problem limitation, method of source collections, and writing systematic.
CHAPTER II SOURCE AND FACTS
This chapter will explain about source and facts of each word that arrange the topic discussed. It is consist of general description about developing countries, foreign currency, and also economics problem which is often faced by developing countries.
CHAPTER III REDENOMINATION OF A CURENCY AS A SOLUTION OF ECONOMICS PROBLEMS IN DEVELOPING COUNTRIES
In this chapter the writer will elaborate some facts about redenomination and it’s capability in solving economics problems in developing nations. Beside that, this chapter contains explanation that support how success redenomination to be implemented in a country.
CHAPTER IV CONCLUSSION AND SUGESTION
This chapter is conclusion of whole chapter and also some suggestion that may be useful for related readers.
SOURCE AND FACTS
A. General Description about Developing Countries
1. Classification of a Country
The world is divided into those countries that are industrialized, have political and economic stability, and have high levels of human health, and those countries that do not. The way we identify these countries has changed and evolved over the years as we have moved through the Cold War-era and into the modern age; however, it remains that there is no consensus as to how we should classify countries by their development status.
First, Second, Third, and Fourth World Countries
The designation of "Third World" countries was created by Alfred Sauvy, a French demographer, in an article that he wrote for the French magazine, L'Observateur in 1952, after World War II and during the Cold War-era. The terms "First World," "Second World," and "Third World" countries were used to differentiate between democratic countries, communist countries, and those countries that did not align with democratic or communist countries. The terms have since evolved to refer to levels of development, but they have become outdated and are no longer used to distinguish between countries that are considered developed versus those that are considered developing.
First World described the NATO (North Atlantic Treaty Organization) countries and their allies, which were democratic, capitalist and industrialized. The First World included most of North America and Western Europe, Japan, and Australia.
Second World described the communist-socialist states. These countries were, like First World countries, industrialized. The Second world included the Soviet Union, Eastern Europe, and China.
Third World described those countries that did not align with either the First World or Second World countries after World War II and generally described less-developed countries. The Third World included the developing nations of Africa, Asia, and Latin America.
Fourth World was coined in the 1970s, referring to the nations of indigenous people that live within a country. These groups often face discrimination and forced assimilation. They are among the poorest in the world.
Global North and Global South
The terms "Global North" and "Global South" divide the world in half both geographically with the Global North meaning all countries north of the equator in the Northern Hemisphere and the Global South being all of the countries south of the equator in the Southern Hemisphere. This classification groups the Global North into the rich northern countries, and the Global South into the poor southern countries. This differentiation is based on the fact that most of developed countries are in the north and most of the developing or underdeveloped countries are in the south. The issue with this classification is that not all countries in the Global North can be called "developed" while some of the countries in the Global South can be called developed.
In the Global North, some examples of the developing countries include: Haiti, Nepal, Afghanistan, and many of the countries in northern Africa.
In the Global South, some examples of the well-developed countries include: Australia, South Africa, and Chile.
MDCs and LDCs
MDC stands for More Developed Country and LDC stands for Least Developed Country. The terms MDCs and LDCs are most commonly used by geographers. This classification is a broad generalization but it can be useful in grouping countries based on factors including their GDP (Gross Domestic Product) per capita, political and economic stability, and human health, as measured by the Human Development Index (HDI). While there is debate as to at what GDP threshold an LDC becomes and MDC, in general, a country is considered an MDC when it has a GDP per capita of more than US $4000, along with a high HDI ranking and economic stability.
Developed and Developing Countries
The most commonly used terms to describe and differentiate between countries are "developed" and "developing" countries. Developed countries describes the countries with the highest level of development based on similar factors to those used to distinguish between MDCs and LDCs, as well as based on levels of industrialization. These terms are the most frequently used and the most politically correct however, there is really no actual standard by which we name and group these countries. The implication of the terms developed and developing is that developing countries will attain developed status as some point in the future.
2. Definitions of Developing Countries
There is a lot of criticism of the use term “developing country”. The term implies inferiority of a developing country compared to a “developed country”, which many countries dislike. It assumes a desire to develop along the traditional western model of economic development which a few countries, such as Cuba and North Korea, have chosen not to follow.
The term “developing” implies mobility and does not acknowledge that development may be in decline or static in some countries. In such cases, the term developing country may be considered a euphemism. The term implies homogeneity within such countries when wealth (and health) of the most and least affluent groups varies widely.
Based from definition in Wikipedia, “developing country is a term generally used to describe a nation with a low level of material well-being”. Since no single definition of the term developed country is recognized internationally, the levels of development may vary widely within so-called developing countries. Some developing countries have high average standard of living. Poorly developed countries are often known as third world countries.
Kofi Annan, former Secretary General of the UN, defined a developed country as one that allows its entire citizen to enjoy a free and healthy life in safe environment. But according to the United Nations Statistic Division, there is no established convention for the designation of “developed” and “developing” countries or areas in the United Nations System. It is also notes that the designations “developed” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process.
In general, development entails a modern infrastructure (both physical and institutional), and a move away from low value added sectors such as agriculture and natural resource extraction. Developed countries, in comparison, usually have economic systems based on continuous, self-sustaining economic growth in the tertiary sector of the economy and quaternary sector of the economy and high material standards of living. However, there are notable exceptions, as some countries considered developed have a significant component of primary industries in their national economies, e.g. Norway, Canada, and Australia. The USA and Western Europe have a very important agricultural sector; both are major players in international agricultural markets. Also, natural resource extraction can be a very profitable industry (high value added) e.g. oil extraction.
3. Measure and Concepts of Development
The IMF uses a flexible classification system that considers
(1) Per capita income level, see appendix 2 to know GNI per capita 2009
(2) Export diversification—so oil exporters that have high per capita GDP would not make the advanced classification because around 70% of its exports are oil,
(3) Degree of integration into the global financial system.
The World Bank classifies countries into four income groups. These are set each year on July 1. Economies were divided according to 2008 GNI per capita using the following ranges of income.
• Low income countries had GNI per capita of US$975 or less.
• Lower middle income countries had GNI per capita between US$976 and US$3,855.
• Upper middle income countries had GNI per capita between US$3,856 and US$11,905.
• High income countries had GNI above US$11,906.
The World Bank classifies all low- and middle-income countries as developing but notes, "The use of the term is convenient; it is not intended to imply that all economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development. Classification by income does not necessarily reflect development status.
The development of a country is measured with statistical indexes such as income per capita (per person) (GDP), life expectancy, the rate of literacy, et cetera. The UN has developed the HDI, a compound indicator of the above statistics, to gauge the level of human development for countries where data is available.
Developing countries are in general countries which have not achieved a significant degree of industrialization relative to their populations, and which have, in most cases a medium to low standard of living. There is a strong correlation between low income and high population growth.
The terms utilized when discussing developing countries refer to the intent and to the constructs of those who utilize these terms. Other terms sometimes used are less developed countries (LDCs), least economically developed countries (LEDCs), "underdeveloped nations" or Third World nations, and "non-industrialized nations". Conversely, the opposite end of the spectrum is termed developed countries, most economically developed countries (MEDCs), First World nations and "industrialized nations".
To moderate the euphemistic aspect of the word developing, international organizations have started to use the term Less economically developed country (LEDCs) for the poorest nations which can in no sense be regarded as developing. That is, LEDCs are the poorest subset of LDCs. This may moderate against a belief that the standard of living across the entire developing world is the same.
The concept of the developing nation is found, under one term or another, in numerous theoretical systems having diverse orientations — for example, theories of decolonization, liberation theology, Marxism, anti-imperialism, and political economy.
4. Example of Developing Countries
Countries are often loosely placed into four categories of development. Each category includes the countries listed in their respective article. The term "developing nation" is not a label to assign a specific, similar type of problem.
1. Newly industrialized countries (NICs) are nations with economies more advanced and developed than those in the developing world, but not yet with the full signs of a developed country. NIC is a category between developed and developing countries. It includes Brazil, China, India, Malaysia, Mexico, Philippines, South Africa, Thailand and Turkey.
2. The Advanced Emerging Markets are: Brazil, Hungary, Mexico, Poland, South Africa and Taiwan.
3. Countries with long-term civil war or large-scale breakdown of rule of law ("failed states") (e.g. Democratic Republic of Congo, Afghanistan, Pakistan, Somalia) or non-development-oriented dictatorship (North Korea, Myanmar and Zimbabwe).
4. Some developing countries have been classified as "Developed countries" such as Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Brunei, Equatorial Guinea, Kuwait, Oman, Qatar, Saudi Arabia and Trinidad and Tobago by the World Bank.
See the appendix 1 to know list of emerging and developing economies.
B. General Description about Currency
1. Definition of Foreign Currency
Based from Thesaurus dictionary:
“Currency - the metal or paper medium of exchange that is presently used medium of exchange, monetary system - anything that is generally accepted as a standard of value and a measure of wealth in a particular country or region money - the official currency issued by a government or national bank.”
Currencies provide a standard of value, a medium of exchange, and unit of measure for economic transactions. Currencies of different countries perform the first two functions with varying degrees of efficiency, but essentially all currencies provide a unit of measure for the economic activities and resources of their respective countries.
For transactions to be included in financial records, they must be measured in a currency. Typically, the currency that a transaction is recorded in and the currency needed to settle the transaction are the same.
See appendix 2 to know kind of currency.
2. Foreign Currency Concepts
a. Direct and Indirect Quotation of Exchange Rates
An exchange rate is the ratio between a unit of one currency and the amount of another currency for which that unit can be exchanged (converted) at a particular time. The exchange rate can be computed directly or indirectly.
• direct quotation: Home Currency / Foreign Currency
• indirect quotation: Foreign Currency / Home Currency
b. Floating, Fixed, and Multiple Exchange Rates
Exchange rates may be fixed by a governmental unit or may be allowed to fluctuate (float) with changes in the currency markets. Official or fixed exchange rates are set by government and do not change as a result of changes in world currency markets. Free or floating exchange rates are those that reflect fluctuating market price for a currency based on supply and demand and other factors in the world currency markets.
1) Floating Exchange Rates
Theoretically, a currency’s value should reflect its buying power in world markets. For example, an increase in a country’s inflation rate indicates that its currency’s purchasing power is decreasing. The currency’s value should fall in relation to other currencies. The technical term for this movement in currency value is weakening. A currency falls, or weakens, relative to another currency if it takes more of that currency to purchase one unit of the other currency.
A large trade surplus (the amount of exports exceeds imports) indicates an increased demand for a country’s currency, since many of those export sales must be paid in the exporting country’s currency. The exporting country’s currency become more valuable relative to the importing countries currencies, or strengthens. A currency strengthens relative to another currency if it takes fewer of that currency to purchase one unit of the other currency.
2) Fixed and Multiple Exchange Rates
When exchange rates are fixed, the issuing government is able to set (fix) different kinds of transactions. For example, it may set a preferential rate for imports (or certain kind of imports) and penalty rates for exports (or certain kind of exports) in order to promote the economic objective of the country. Such rates are referred to as multiple exchange rates.
3. Foreign Currency Transaction
In the case of transactions between business entities of different countries, the amounts receivable and payable are ordinarily denominated in the local currency of either the buying entity or the selling entity. Sometimes the amounts are denominated in the currency of a third country whose currency is relatively more stable than the currency of either the buyer or the seller.
For example, if a U.S. firm sells merchandise to an Indonesian firm, the transaction amount will be denominated (fixed) in either U.S. Dollars or Indonesian Rupiahs, even though the U.S. firm will measure and record its account receivable and sales in U.S. dollars and Indonesian firm will measure and record its purchase and account payable in Indonesian Rupiahs.
If the transactions denominated in IDR, the U.S. firm has to determine how many U.S. dollars the transaction represents in order to record it. If the transaction is denominated in U.S. dollars, the Indonesian firm has to determine how many IDR the transaction represents. To measure the transaction in their own currencies, business around the world relies on exchange rates negotiated on a continuous basis in world currency markets. Exchange rates are essentially prices for currencies expressed in units of other currencies.
The foreign exchange markets are usually highly liquid as the main international banks continually provide the market with both bid (buy) and ask (sell) offers. The volume of trading in the foreign exchange markets exceeds that in any other market, liquidity is extremely high.
In the foreign exchange markets there is little or no 'inside information'. Rate fluctuations are usually to do with world economy or the national economies so significant news is released publicly so, at least in theory, everyone in the world receives the same news at the same time. This is in contrast to the equity market where a stock may lose value by 5% or more, and only later do the reasons for this become apparent when a newspaper reports that forecasts for that company have been revised downward, or that a key executive has resigned (this is why insider trading in stock markets can be a problem).
Top 7 Most Traded Currencies
Rank Currency Code
1 United States Dollar USD
2 Japanese Yen JPY
3 EU Euro EUR
4 Canadian Dollar CAD
5 British Pound Sterling GBP
6 Australian Dollar AUD
7 Swiss Franc CHF
Big foreign exchange trading centre are located in New York, Tokyo, London, Hong Kong, Singapore, Paris and Frankfurt amongst others and the foreign exchange market is open 24 hours per day throughout the week (closing worldwide Friday afternoon and reopening Sunday afternoon). If the European Market is closed the Asian Market or U.S. will be open on the other and so all world currencies can be continually in trade. Traders can react to news when it breaks, rather than waiting for the market to open, as is the case with most other markets. This enables traders to take positions anticipating the impact on the exchange rate of important news items.
In the foreign exchange markets there is never a 'bear' market. Currencies are traded in pairs; every trade involves the selling of one currency and the buying of another. If some currencies are going down, others must be going up.
C. General Description about Economic Problems
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects.
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Deflation is when asset and consumer prices continue to fall. This may seem like a great thing to consumers, except that the cause for deflation is a long-term drop in demand. Unfortunately, a drop in demand means that a recession is already underway, with job losses, declining wages, and an ongoing decline in the value of your home and your stock portfolio. Deflation is a result of businesses dropping prices in a desperate attempt to get people to buy their products.
A recession is when GDP growth slows, businesses stop expanding, employment falls, unemployment rises, and housing prices decline.
The textbook definition of a recession states GDP growth must be negative for two consecutive quarters or more. This is certainly true of this recession, which had three consecutive quarters of negative GDP growth.
For all practical purposes, a recession starts when there are several quarters of slowing but still positive growth. Often a quarter of negative growth will occur, following by positive growth for several quarters, and then another quarter of negative growth.
Stagflation is when the economy experiences slow GDP growth (stagnation) with high inflation. When the economy is working normally, stagnant economic growth reduces demand, which keeps prices low, preventing inflation. Stagflation can only occur when fiscal or monetary policy sustains high prices, and inflation, despite slow growth.
REDENOMINATION OF A CURENCY AS A SOLUTION OF ECONOMICS PROBLEMS IN DEVELOPING COUNTRIES
A. Redenomination Theory
Redenomination is the process where a "new" unit of currency replaces the "old" unit with a certain ratio. This means that the currency changes from the "old" currency to a "new" one, which are often worth 1000, 10,000, 100,000, or 1 million units of the old currency.
Redenomination has a long history: in the 19th century, when governments faced shortages of gold or silver, they sometimes adjusted the value of their coins accordingly. Among developing and transition nations, currency redenomination was employed on 60 occasions during the 1960-2003 period.2 These redenomination varied in size, from removing one zero from the currency (14 instances) to removing six zeros (9 instances); the median redenomination was three zeros, dividing the currency by 1000. Nineteen countries have used redenomination on one occasion, while ten countries have redenominated twice (sometimes, with many years in between, as in Bolivia, in 1963 and 1987; in other cases, redenomination follow 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.
Table 1 demonstrates significant variation in terms of the way in which redenomination is employed. The table lists the country-years in the dataset during which annual inflation exceeds 100 percent; some of these country-years are clearly hyperinflationary, while others are more moderate instances. In some cases, as in Argentina in 1992, redenomination marks the culmination of dramatic economic reform packages; by the time governments redenominated, they have addressed the monetary policy problems that generated the large local currency to dollar ratios. In other nations (e.g. Chile, Croatia), redenomination comes during, not after, the economic stabilization process. In still other cases, particularly those marked by long-running civil conflicts (Angola and the Democratic Republic of the Congo, Nicaragua), redenomination are employed, perhaps repeatedly, but high rates of inflation persist afterward. And not all periods of high inflation generate a subsequent redenomination: Ghana in the late 1970s and early 1980s and Indonesia in the late 1960s are two examples.
Many nations with high levels of inflation also have relatively lowly valued local currencies, making large denomination currencies necessary for basic transactions in the economy. While it is high or hyperinflation that often causes this situation, the presence of large-denomination notes may be the most obvious sign to citizens of a potential need for redenomination. In Argentina in the 1960s, for instance, one US dollar was equivalent to 1,100 (1962) to 3500 (1969) Argentine pesos moneda nacional. The 1970 redenomination addressed this issue, removing two zeros while creating the peso ley. And in the early 1980s, one US dollar was equivalent to between 18,000 (1980) and 180,000 (1982) pesos ley; the 1983 currency reform (resulting in the peso Argentino) divided currency values by 10,000. Where redenomination is employed, but where overall economic reform is ineffective, these large ratios persist: the Azerbaijani manat was equal to 0.06 US cents in 1994 and to 0.02 cents in 2003.
This set also includes a significant number of countries that do not drop zeros. The latter group includes Cambodia, with a riel-dollar rate ranging from 1037 to 3973 during the last fifteen years; Ecuador, which chose near-full dollarization in the face of Sucre-dollar rates of 25000; Indonesia, where 10,000 rupiah purchased a dollar in 1998; and Paraguay, with local currency-dollar rates ranging from 1,000 to 6,400 during 1989-2003. Of course, local currency ratios to the dollar do not always correlate with inflation: in some cases, ratios remain high long after inflation has been addressed. South Korea, for instance, has had single digit inflation since 1982; but the won-dollar rates have been at four digits since late 1997. As a result, policymakers in Korea discussed the possibility of currency redenomination in 2004, as did government officials in Japan at various times during the 1990s.3 And several countries presently have high-denomination (100,000 local currency units) bills in circulation Indonesia, Cambodia, Lebanon, Mozambique, Paraguay and Vietnam (Central Bank of the Republic of Turkey 2004).
See appendix 4 to know about history of redenomination.
B. Rationales of Redenomination
1. Credibility, Local and Global.
Governments often are interested in establishing their credibility, specifically, in establishing a commitment to low-inflation policies Vis-à-vis their own citizens, as well as international capital markets. Enhanced credibility can improve a government’s electoral fortunes, as citizens reward economic growth and macroeconomic discipline; and it can improve a government, as treatment, as a borrower, as a location for private investment, and as a defender of an exchange rate in the eyes of global capital markets. As part of their efforts to establish credible commitments, governments in recent years often have increased the (statutory) independence of their central banks and have made explicit commitments to macroeconomic targets. For countries that seek to join regional currency areas (e.g. EMU), assuring international markets of their commitments is essential. Romania’s central bank, for instance, portrayed its redenomination as indicating that .the days of hyper-inflation are over and the new currency will help keep things that way (BBC 2005). Romania has established a goal of joining EMU by 2012, and a currency that was worth 29,890 to the dollar was seen as an impediment to doing so.
In countries where hyperinflation has occurred, governments face an uphill struggle when it comes to regaining the confidence of international markets and domestic constituents. The most direct means is through a stabilization program, which generally involves using either exchange rate-based or monetary-oriented targeting; increasing the operational independence of the central bank; and removing distortion economic policies. In many cases, such stabilization occurs the aegis of an IMF standby agreement.
2. Domestic Politics.
The use of redenomination as a means of improving credibility is ultimately an account rooted in domestic politics. Governments want to keep inflation low because they are rewarded by voters for strong economic performance, and low inflation helps the economy. Alternatively, governments want to impress international markets, as this allows them to borrow more cheaply and to attract foreign investment, which in turn facilitates government spending and domestic economic growth. All of this assumes that governments are responsive to the views of citizens, which may be truer in democracies.
3. Identity and money.
Many observers view money largely as a medium of exchange: territorial currencies are instruments that facilitate transactions in the economy and assist governments in macroeconomic management, while also providing revenue at the time of printing (seignorage). Others take a broader view of national currency: it not only facilitates economic interactions, but also affects citizens, identity and, subsequently, the legitimacy of the national government
CONCLUSION AND SUGGESTION
• Redenomination is the process where a "new" unit of currency replaces the "old" unit with a certain ratio.
• Almost all of developing countries had been use redenomination. Countries which have redenominated their currencies in recent years include North Korea and Zimbabwe, which used it to tackle hyperinflation, as well as Poland and Romania which had brought inflation under control and redenominated to establish the value of their currencies.
• Redenomination has a long history. And it had been proven by many nations through this world that it can be an effective solution in solve any economic problems like inflation, deflation, and stagflation. For recession, there weren’t any source that a country could be helped by redenomination reduce its effect.
• Redenomination had been a common and right solution in cut over zero nominal. Only a few countries had not adopted this policy such as Indonesia, Ghana, Mongolia, etc who had experience high inflation.
• Rationales of Redenomination consist of some reason. Some of them are credibility, local, and global, domestic policy, and also identity and money for citizens of a country.
• From other source, variables that affect redenomination policy are inflation rate, democracy, IMF pressure, exchange rate regime, repeated redenomination, and currency and identity.
• For Indonesia, the writer thinks that redenomination is a correct solution for our problems in makes our currency not to weak than others. But the Indonesian central bank must provide better information to the public in an effort to smoothen up the plan.
• Redenomination is in line with the preparation for the ASEAN economic community. If we want 1 rupiah to be valuable we have to redenominate our currency. There won’t be an inflationary effect. This way it will reduce the rounding-up of the rupiah. Now people are used to round up to thousands.
• Beams, Floyd A, Joseph H. Antony, and Robin P. Clement. Advance Accounting, Eighth Editions. Prentice Hall. New Jersey
List of emerging and developing economies
The following are considered emerging and developing economies according to the International Monetary Fund's World Economic Outlook Report, April 2010
• Antigua and Barbuda
• The Bahamas
• Bosnia and Herzegovina
• Burkina Faso
• Cape Verde
• Central African Republic
• Democratic Republic of the Congo
• Republic of the Congo
• Costa Rica
• Côte d'Ivoire
• Dominican Republic
• El Salvador
• Equatorial Guinea
• The Gambia
• Marshall Islands
• Federated States of Micronesia
• Papua New Guinea
• Saudi Arabia
• São Tomé and Príncipe
• Sierra Leone
• Solomon Islands
• South Africa
• Sri Lanka
• Saint Kitts and Nevis
• Saint Lucia
• Saint Vincent and Grenadines
• Trinidad and Tobago
• United Arab Emirates
Developing countries not listed by IMF
• North Korea
List of graduated developing economies (Four Asian Tigers and New Euro countries), now considered advanced economies
• Hong Kong (after 1997)
• Singapore (after 1997)
• South Korea (after 1997)
• Taiwan (after 1997)
• Cyprus (after 2001)
• Slovenia (after 2007)
• Malta (after 2008)
• Czech Republic (after 2009)
• Slovakia (after 2009)
Table 1: NAME OF CURRENCY
Afghanistan afghani 100 puls Grenada dollar 100 cents Pakistan rupee 100 paisa
Albania lek 100 qindarka Guatemala quetzal 100 centavos Palau dollar 100 cents
Algeria dinar 100 centimes Guinea franc 100 centimes Panama balboa 100 centesimos
Andorra euro 100 cents Guinea-Bissau franc 100 centimes Papua New Guinea kina 100 toea
Angola kwanza 100 centavos Guyana dollar 100 cents Paraguay guarani 100 centimos
Antigua and Barbuda dollar 100 cents Haiti gourde 100 centimes Peru sol 100 centimos
Argentina peso 100 centavos Honduras lempira 100 centavos Philippines piso 100 sentimos
Armenia dram 100 lumma Hong Kong dollar 100 cents Poland zloty 100 groszy
Australia dollar 100 cents Hungary forint 100 fillers Portugal euro 100 cents
Austria euro 100 cents Iceland krona 100 aurar Qatar riyal 100 dirhams
Azerbaijan manat 100 qepiq India rupee 100 paise Romania leu 100 bani
Bahamas dollar 100 cents Indonesia rupiah 100 sen Russia ruble 100 kopeks
Bahrain dinar 1000 fils Iran rial 100 dinars Rwanda franc 100 centimes
Bangladesh taka 100 poisha Iraq dinar 1000 fils Saint Kitts and Nevis dollar 100 cents
Barbados dollar 100 cents Ireland euro 100 cents Saint Lucia dollar 100 cents
Belarus rubel 100 kapeikas Israel sheqel 100 agorot Saint Vincent and the Grenadines dollar 100 cents
Belgium euro 100 cents Italy euro 100 cents Samoa tala 100 sene
Belize dollar 100 cents Ivory Coast franc 100 centimes San Marino euro 100 cents
Benin franc 100 centimes Jamaica dollar 100 cents São Tomé and Príncipe dobra 100 centimos
Bhutan ngultrum 100 chetrum Japan yen 100 sen Saudi Arabia riyal 100 halalas
Bolivia boliviano 100 centavos Jordan dinar 100 piasters Senegal franc 100 centimes
Bosnia and Herzegovina marka 100 pfenigs Kazakhstan tenge 100 tiyin Serbia dinar 100 para
Botswana pula 100 thebe Kenya shilling 100 cents Seychelles rupee 100 cents
Brazil real 100 centavos Kiribati dollar 100 cents Sierra Leone leone 100 cents
Brunei dollar 100 sen Kuwait dinar 1000 fils Singapore dollar 100 cents
Bulgaria lev 100 stotinki Kyrgyzstan som 100 tyiyn Slovakia euro 100 cents
Burkina Faso franc 100 centimes Laos kip 100 at Slovenia euro 100 cents
Burundi franc 100 centimes Latvia lats 100 santimi Solomon Islands dollar 100 cents
Cambodia riel 100 sen Lebanon pound 100 piasters Somalia shilin 100 senti
Cameroon franc 100 centimes Lesotho loti 100 lisente South Africa rand 100 cents
Canada dollar 100 cents Liberia dollar 100 cents South Korea won 100 chon
Cape Verde escudo 100 centavos Libya dinar 100 dirhams Spain euro 100 cents
Central African Republic franc 100 centimes Liechtenstein franc 100 centimes Sri Lanka rupee 100 cents
Chad franc 100 centimes Lithuania litas 100 centas Sudan dinar 100 dirhams
Chile peso 100 centavos Luxembourg euro 100 cents Suriname dollar 100 cents
China yuan 10 jiao Macao pataca 100 avos Swaziland lilangeni 100 cents
Colombia peso 100 centavos Macedonia denar 100 deni Sweden krona 100 öre
Comoros franc 100 centimes Madagascar ariary 5 iraimbilanja Switzerland franc 100 centimes
Congo (Dem. Rep. of) franc 100 centimes Malawi kwacha 100 tambala Syria pound 100 piasters
Congo (Rep. of) franc 100 centimes Malaysia ringgit 100 sen Taiwan yuan 100 cents
Costa Rica colon 100 centimos Maldives rufiyaa 100 laari Tajikistan somoni 100 dirams
Croatia kuna 100 lipa Mali franc 100 centimes Tanzania shilling 100 cents
Cuba peso 100 centavos Malta euro 100 cents Thailand baht 100 satang
Cyprus euro 100 cents Marshall Islands dollar 100 cents Togo franc 100 centimes
Czech Republic koruna 100 halers Mauritania ouguiya 5 khoums Tonga pa'anga 100 seniti
Denmark krone 100 øre Mauritius rupee 100 cents Trinidad and Tobago dollar 100 cents
Djibouti franc 100 centimes Mexico peso 100 centavos Tunisia dinar 1000 millimes
Dominica dollar 100 cents Micronesia dollar 100 cents Turkey lira 100 kurus
Dominican Republic peso 100 centavos Moldova leu 100 bani Turkmenistan manat 100 tenge
East Timor dollar 100 cents Monaco euro 100 cents Tuvalu dollar 100 cents
Ecuador dollar 100 cents Mongolia tugrik 100 mongo Uganda shilling 100 cents
Egypt pound 100 piasters Montenegro euro 100 cents Ukraine hryvnia 100 kopiykas
El Salvador colon 100 centavos Morocco dirham 100 centimes United Arab Emirates dirham 100 fils
Equatorial Guinea franc 100 centimes Mozambique metical 100 centavos United Kingdom pound 100 pence
Eritrea nakfa 100 cents Myanmar kyat 100 pyas United States dollar 100 cents
Estonia kroon 100 senti Namibia dollar 100 cents Uruguay peso 100 centesimos
Ethiopia birr 100 cents Nauru dollar 100 cents Uzbekistan som 100 tyyn
Fiji dollar 100 cents Nepal rupee 100 paisa Vanuatu vatu
Finland euro 100 cents Netherlands euro 100 cents Vatican City euro 100 cents
France euro 100 cents New Zealand dollar 100 cents Venezuela bolivar 100 centimos
Gabon franc 100 centimes Nicaragua cordoba 100 centavos Vietnam dong 10 hao
Gambia dalasi 100 bututs Niger franc 100 centimes Yemen rial 100 fils
Georgia lari 100 tetri Nigeria naira 100 kobo Zambia kwacha 100 ngwee
Germany euro 100 cents North Korea won 100 chon Zimbabwe dollar 100 cents
Ghana cedi 100 pesewas Norway krone 100 øre
Greece euro 100 cents Oman rial 1000 baisa
Copyright © 2009 by Houghton Mifflin Harcourt Company
List of countries by Gross National Income per capita in 2009
This is a list of countries by Gross National Income per capita in 2009 at nominal values, according to the Atlas Method, an indicator of income developed by the World Bank.
Figures in italics are for 2008 or 2007. All data are in United States dollars. Non-sovereign entities or other special groupings are marked in italics.
United States (47,240$)
Country / Territory
GNI (US $)
5 Channel Islands
11 Isle of Man
12 San Marino
13 United Arab Emirates
16 Cayman Islands
18 United States
29 United Kingdom
34 Hong Kong
37 New Zealand
42 The Bahamas
44 South Korea
47 Saudi Arabia
48 Czech Republic
48 Trinidad and Tobago
54 Equatorial Guinea
57 Antigua and Barbuda
61 Saint Kitts and Nevis
63 Russian Federation
79 Costa Rica
83 South Africa
86 Saint Lucia
87 Saint Vincent and the Grenadines
92 Bosnia and Herzegovina
94 Dominican Republic
111 El Salvador
115 Marshall Islands
116 Cape Verde
128 Federated States of Micronesia
132 Sri Lanka
134 Republic of the Congo
143 Papua New Guinea
146 São Tomé and Príncipe
149 Côte d'Ivoire
158 Solomon Islands
170 Burkina Faso
175 Central African Republic
176 The Gambia
183 Sierra Leone
188 Democratic Republic of the Congo
Table 2: Inflationary Episodes and Redenomination Outcomes
Country Years & Annual Inflation Rates Redenomination?
Albania 1992 (226%) No
Angola 1992 (299%), 1993 (1379%), 1994 (949%), 1995 (2672%), 1996 (4145%), 1997-2002 (average, 194%). Yes, 1995.
Argentina 1975-1982; average annual rate 267% Yes, 1983.
Argentina 1983 (344%), 1984 (627%), 1985 (672%) Yes, 1985.
Argentina 1987, 1988, 1989 (3080%), 1990 (2314%), 1991 (172%) Yes, 1992.
Armenia 1994 (4962%), 1995 (176%) No.
Azerbaijan 1992 (912%), 1993 (1129%), 1994 (1665%), 1995 (412%) Yes, 1992.
Belarus 1993 (1190%), 1994 (2221%), 1995 (709%) Yes, 1992.
Belarus 1999 (294%), 2000 (169%) Yes, 2000.
Bolivia 1981-1986; peaked at 11749% in 1985. Yes, 1987.
Brazil 1981-1985, average annual rate 151%. Yes, 1986.
Brazil 1986 (147%), 1987 (228%), 1988 (629%), 1989 (1431%) Yes, 1989.
Brazil 1990 (2948%), 1991 (433%), 1992 (952%), 1993 (1928%), 1994 (2076%) Yes, 1993 and 1994.
Bulgaria 1991 (338%), 1996 (122%), 1997 (1058%) Yes, 1999.
Chile 1973 (362%), 1974 (505%), 1975 (375%), 1976 (212%) Yes, 1975.
Congo, Dem. Rep. 1979 (101%), 1989 (104%), 1991 (2154%), 1992 (4129%), 1993 (1987%) Yes, 1993.
Congo, Dem. Rep. 1994 (23773%), 1995 (542%), 1996 (542%), 1997 (176%) Yes, 1998.
Congo, Dem. Rep. 1999 (285%), 2000 (514%), 2001 (360%) No.
Croatia 1992 (625%), 1993 (1500%), 1994 (107%) Yes, 1994.
Georgia 1995 (163%) Yes, 1995.
Ghana 1977 (116%), 1981 (117%), 1983 (123%) No.
Indonesia 1962 (131%), 1963 (146%), 1964 (109%), 1965 (307%), 1966 (1136%), 1967 (106%), 1968 (129%) No.
Israel 1980 (131%), 1981 (117%), 1982 (120%), 1983 (146%), 1984 (374%), 1985 (305%) Yes, 1980 and 1985.
Kazakhstan 1994 (1877%), 1995 (176%) No.
Laos 1999 (128%) No.
Latvia 1992 (243%), 1993 (109%) Yes, 1993.
Lebanon 1987 (488%), 1988 (128%) No.
Lithuania 1993 (410%) Yes, 1993.
Macedonia 1994 (126%) Yes, 1993.
Mexico 1983 (102%), 1987 (132%), 1988 (114%) Yes, 1993.
Mongolia 1993 (268%) No.
Nicaragua 1985-1991. Highest in 1989 (4770%), 1990 (7485%) and 1991 (2945%) Yes, 1998.