TL;DR: is there any thing preventing a country from introducing a new currency that has a higher purchasing power per unit than their old currency for the purpose of lowering the values of their minted currency? For example saying that 1 NewCurrency = 1,000 OldCurrency. Thus, allowing the government to print new bills that start at 1, rather than 1,000. Allowing more convenient and intuitive transactions and math for the common people (since working with bigger numbers is generally harder and less intuitive, even if the math is still technically the same).
From my very limited understanding of economic theory, in an ideal economy there should be at least a small amount of inflation to encourage people to spend their money rather than hoard it since $10 now will have mpre purchasing power than $10 in 20 years. Thus, hoarding money (ignoring investments, bank interest rates, etc.) means your money will have significantly more purchasing power the sooner you use it, and thus, people are more likely to spend money and stimulate the economy.
That said, to me it seems like the logical conclusion of this is that over time "1 unit" of a country's currency at time t1 would be equal to "X units" of that same currency at time t2, where X could be hundreds, thousands, millions etc. of the original currency unit. I feel like if the currency unit gets bloated to such extreme values that it would make things just harder overall in a country's economy, especially for the average person. Numbers in accounting systems would balloon to absurd values making accounting processes non intuitive. Regular people making everyday transactions would become more complicated, since instead of working with smaller, more intuitive, numbers, like $5 to buy a beer or something, they could end up having to do the mental math to pay $150,000 for the same beer (where in this scenario, $5 at time t1 has the same purchasing power as $150,000 at time t2).
I feel like some countries that have experienced significant inflation or just started with a currency value that was worth less than the US dollar have already seen this more or less play out. For example, the Vietnamese Dong (VND) has an exchange rate of roughly 26,000 VND to 1 USD. I'm sure people that are familiar with this economy are used to the values of their currency and don't notice too many issues, but I still think it would be easier for people if they used a separate currency that has more value per unit.
Thus, my question is: Could a country introduce a "new" currency that had a 1:X exchange rate, or maybe a 1:X:Z exchange rate, where 1 is that country's current currency, X is the hypothetical new currency that they are introducing, and, if needed, Z could be some sort of global currency standard whether that's the USD, GBP, EUR, gold, etc?
For a specific hypothetical example, let's say that the Vietnamese government did think that the value of the VNDwas too high to be convenient for its people to use. Could they introduce a new currency, lets call it the Vietnamese NewCurrency (VNC) that had an exchange rate of 1 VNC : 26,000 VND : 1 USD. If they did so, they could "reset" their currency (not the purchasing power, just the numerical value) to be mkre convenient and intuitive.
I'm sure this would introduce a fair amount of practical problems, mostly growing pains from making such a transition. For example, having to mint new currency, having to introduce a method for people to convert their VND into VNC, etc. Regardless I'm just wondering if it's possible.
I'm fully aware that this would be difficul and impractical to actually implement. Since the transition to the new currency would of course cost some money in and of itself, and thus it may not make any practical sense to do so. That said, for the purposes of this question I'm mostly ignoring practical issues, and instead I'm curious if there are any theoretical legal, mathematical, economical, international, etc. laws/principles/theories that would make a transition like that impossible, not just impractical. Like, is there some sort of international agreement that would prevent a country from doing so or is there some sort of economic principle that shows it wouldn't work, etc.?
Can countries replace their currency (e.g. Dollar, Pound, Yen, etc.) with a different currency at a 1:X exchange rate?
byu/Wickedsymphony1717 inAskEconomics
Posted by Wickedsymphony1717