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Removing zeros and revaluing the Iraqi dinar
10/23/2024
Ali Daadoush
The concepts and scientific names in economics differ according to the specialization and the branches derived from it. When talking about the exact specialization, economic variables must be named by their scientific names. One of these names is the term redenomination, or as it is called (removing zeros from the currency). Countries usually resort to it to address rampant inflation and the decline in the value of the local currency, as the old currency is replaced with a new currency at a fixed price by removing at least 3 zeros from the old currency.
Currency revaluation becomes necessary when it comes to hyperinflation because it takes a very large number of old banknotes to facilitate trade, especially in local markets, and small banknotes become useless, as an individual needs millions of banknotes to buy simple or necessary household or food needs, an example of this is what happened in 2006 when Zimbabwe renamed its currency at a rate of (1000 old Zimbabwe dollars) for a new Zimbabwe dollar.
In addition, deleting zeros from a currency can also happen when a country joins a monetary union, as happened in the eurozone, and begins using a currency like the euro instead of its local currency. When the euro was introduced in 1999, member states first used the new currency for electronic payments and accounting, then switched from their local banknotes and coins to the euro in 2002.
There are several reasons behind renaming the currency (removing zeros), and they can be summarized as (controlling inflation, facilitating trade and the economy, political factors such as a change in government, for example, in addition to technical considerations such as updating financial systems, which are usually part of a larger project to update the country’s financial systems, such as converting to new digital systems for dealing with the currency).
From what has been mentioned, we find that (deleting zeros) is not carried out randomly, but rather is implemented after a comprehensive study of the economy and the challenges it faces, and it must be accompanied by other economic and financial measures to protect the economy from financial fluctuations. Therefore, renaming the currency is a complex decision that requires a comprehensive study of the economy and politics in the country, and it must be implemented while minimizing the potential negative effects on the economy and citizens.