When and in what case is the procedure called denomination carried out? How does it differ from devaluation? And is it worth being afraid of it? We will answer all the questions in the article.

What is the essence of denomination?
Denomination is a change in the nominal value of financial instruments. Most often the term is used when exchanging old signs for new ones with a smaller denomination. In addition to monetary , it is possible to devalue stocks, bonds and other financial instruments that have a fixed nominal value. For example: consolidation (reverse split) of shares is denomination, and it implies an increase in the nominal value of the security, and split (split) of shares implies a decrease in the nominal value of shares and is also denomination.

This reform is carried out for the following reasons
global financial crisis;
military actions inside the country or with its participation;
tense political situation;
natural accidents, due to which a number of industries stopped functioning.

All of the above factors lead to a slowdown in economic growth. To stabilize the situation, simplify monetary circulation and strengthen the national currency, denomination is carried out. As a result, the gold content of the monetary unit increases. For example, if before 100 grams of precious metal were worth 1000 rubles, then after the reform they can cost already 1 ruble.

Pros and cons of monetary reform
Like any phenomenon, denomination has both positive and negative sides. Let’s analyze them in detail.

Pros
Simplification of settlements and payments, especially if it concerns cash;
Reduction of inflation and stabilization of the economic situation of the country;
Reducing the number of banknotes and reducing the cost of printing them;
Strengthening the monetary unit by reducing the money supply.

Cons
Additional costs for printing banknotes with new designations;
The need to replace all the media that bear the old prices;
Probability of price increase due to their rounding upwards;
Internal resistance of the population, prices and banknotes that are unfamiliar to them.

How does denomination differ from devaluation?
The concepts of “denomination” and “devaluation” are often confused. The reason for this is not only the similar pronunciation of the words, but also the logical connection between them. Let’s consider what the second term means.

Devaluation is the gradual depreciation of one country’s currency relative to the price of currencies or gold on the international market.

Devaluation and denomination are united by a cause-and-effect relationship and represent one process. That is, one follows from the other. Usually events occur in this order:

inflation → hyperinflation → devaluation → denomination

There may be situations when the chain consists of only two links: inflation and denomination. This happens as a result of a rapid rise in prices for goods and services, which is disastrous for the state and its economy. On the basis of such inflation, the government of the country is forced to announce denomination, bypassing the previous processes.

The reverse sequence is also likely, when denomination becomes the cause of inflation. This happens if after the replacement of banknotes the general price level increases, which turns into hyperinflation. And it, in its turn, triggers the next stage – devaluation.

As we have found out, the terms diverge in meaning, although they are often used together. To summarize their differences, let us note their main properties in the table.

Denomination	Devaluation
The value of the national currency does not fall, only its nominal value changes	The value of the national currency is declining against foreign currencies
The procedure is carried out to prevent hyperinflation	The procedure leads to higher inflation and lower purchasing power
The main point of denomination is to stabilize the state’s economy	The process serves as proof of the weakening of the country’s economy

How to save money for the investor?
Since an incorrectly conducted denomination can lead to inflation and currency devaluation, investors should consider what to do in case of reform. After all, if you do not react in time to the ongoing events, you can lose part of your investment, and in case of a negative outcome, you may be left without savings at all.
1
First of all, it is necessary to determine what type of denomination is carried out: rapid or gradual. With the first option, there is a better chance that all residents of the country will have time to exchange their money and will not lose their complex value. With rapid inflation, the risks of losing their finances are much higher, because the time to exchange banknotes is much less. In this case, it is worthwhile to convert banknotes as soon as possible and meet the deadline (usually it is from 3 days to several weeks).
2
Another option for investing available funds is to buy currency. But to reduce the risk of large losses, experts recommend diversifying your investment portfolio. This means that you should consider buying several types of currencies and give priority to the most stable ones: dollar, euro, Swiss franc and so on. This way you can avoid a complete loss of savings if one of the currencies falls in value on the international financial market.
3
Another way to save is to make large purchases that you have been planning for a long time but have been putting off for a long time. This applies to real estate, making repairs, buying appliances and other necessary things. This will be a good option to invest money, because after denomination prices may increase, as well as the cost of goods you need. At the same time, if you have experienced the need for large purchases, you should not make them as an attempt to invest savings. After all, the cost of things may increase only slightly, and the need for the goods will not appear.

When was the ruble denomination in Russia?
In total, denomination in Russia was carried out 6 times. Let’s consider each of the cases separately.
For the first time, the reform was carried out in 1922

It was a consequence of the weakening of the economy, caused by the October Revolution of 1917 and the Civil War. The government was forced to start a monetary reform, during which they stopped issuing old money signs. And securities and coupons were replaced with new banknotes in the ratio of 10,000:1. Thus, ten thousand old rubles corresponded to one new one.

In the same year, it was decided to carry out the second denomination. According to its results, new rubles were issued: 1 money token became equal to 100 denominations of 1922 and 1 000 000 money tokens that were in circulation before that.

 

 

Since both denominations did not lead to the expected economic results, the procedure was carried out again in 1924. Rubles were exchanged in treasury bills: a person could get one new one for 50,000 old rubles. Thus, the Soviet ruble appeared in circulation, which was equal to 50 billion denominations issued before 1922.

The second monetary reform in Russia was in 1947
According to its results, 10 old rubles became equal to 1 new one. As a result of the changes, there was a decrease in prices, but the order of salaries and other payments remained the same, so some experts do not distinguish this procedure as denomination.
In 1961, the issue of monetary reform arose again
This was preceded by inflation and a constant shortage of mass consumption goods. The denomination was announced to the population in advance and new banknotes were put into circulation. They were exchanged for denominations of 1947 and coins issued in the USSR in the ratio of 10:1. According to experts, the new ruble was undervalued more than 2 times, which had negative consequences: the purchasing power of imported goods of the population decreased, as well as the level of labor remuneration.
The last denomination in Russia took place in 1997

The reason for this decision was a number of factors: the need to curb inflation, to track the movement of “shadow” money and to increase money in the economy. The exchange of old banknotes is carried out in the ratio of 1000:1 during the year. This process coincided with devaluation, which led to default and a difficult economic situation in the country.

Currently, among the Russian population, the question of whether there will be denomination in the country is also being raised. But experts believe that inflation has not reached the critical value, as in 1997, at which it is worthwhile to carry out the procedure.