Redenomination costs will not be modest – economist

There is a belief that the cost of redenominating the national currency is insignificant – but this is not true. Indeed, it is not a problem to print new money, but it also involves reconfiguring all cash-handling equipment such as ATMs, vending machines and automatic cash registers in the metro, Finam group analyst Alexei Korenev said.

Credit: Igor Zarembo | RIAN

The expert also denied any correlation between redenomination and the outflow of funds from bank accounts. He does not believe these two factors are connected in any way.

The statement that a redenomination of the national currency will not cost anything at all is equally incorrect, because it takes reconfiguring ATMs, automatic cash registers in the metro and at suburban train stations, as well as a host of other equipment to use different banknotes and coins, the expert said. The process will be long and expensive.

However, a rebasing of the money is justified in some cases, the expert added. One of such situations is currency depreciation, when an immense amount of this depreciated paper has accumulated with the population, putting metal coins out of circulation. When this inconvenience will outweigh the costs, it would be logical to rebase, as was the case in 1998.

Alexei Korenev added that those who claim that redenomination of money will lower the quality of the currency in hand 100-fold, relieving the burden on the budget, are also wrong.

“Due to reduced face value, the amount of monetary stock will lower respectively. But the same will happen to all the other financial and economic indicators of government activity. The ruble value of GDP will also reduce 100-fold. The amount of issued loans and bank and corporate deposits will also reduce 100-fold. Will the rubles exchange rate become 100 times stronger? No. It will simply be calculated based on the fact that we cut off two zeroes,” the expert commented.

He added that the nominal value of the currency in hand will reduce 100-fold. But the share of cash in hand (it is the share, rather than the absolute value, that is important) in the country’s total monetary stock, GDP and other indicators, will not change – because these indicators will also shrink 100 times.

“Will redenomination affect the value of the Russian ruble against the US dollar, the euro or the Japanese yen? No. The ruble’s exchange rate is affected by completely different factors unrelated to the redenomination. Because redenomination itself is nothing more than a technical procedure which, as I said earlier, is justified by the correlation between the cost of redenomination and the inconvenience of using large amounts of banknotes,” the expert concluded.

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