Money is a unique product that can be exchanged for any other. In most countries of the world, banknotes and coins are issued, which are recognized as the main means of payment for purchases and services throughout the state. The national currency system is dynamic. As necessary, the government makes changes and additions to it. The most radical transformations take place during the period of monetary reform.
The reason for reforming the country's monetary system may be the justified need to strengthen the national currency. The reduction of the role of money, its significant depreciation, instability of the market for goods and services, and a decrease in the purchasing power of the population lead to a radical reorganization of the financial mechanism.
The choice of specific methods for transforming the money supply depends on the structure of political power, social stratification of society, and the level of economic development. The reform is initiated by the government of the country. Any change in the monetary system is made only on the basis of legislative acts that have passed a multi-stage economic and legal examination and approved by the head of state.
The mechanism of transformations that improve national finances includes the withdrawal from circulation of existing banknotes and the issue of new ones. At the same time, not only the type of bill or coin changes, but also its natural support, the so-called "gold content". Monetary units change for all systems of financial turnover: for non-cash payments and for cash. The rate of national money in the world foreign exchange market is also subject to revaluation.
The most common forms of monetary reform are nullification, devaluation, denomination, and revaluation. Nullification is a quick one-time removal from circulation of depreciated paper currency. This method is used to slow down inflationary processes. Nullification is also resorted to in countries where, after a change in the political system, existing bills and coins have lost their legal force.
Devaluation is understood as such a reform in the course of which the government produces a decrease in the value of banknotes. On the basis of a legislative act, from a certain date, the gold backing of a currency unit is reduced or the rate of the national currency decreases in comparison with the foreign one. Most often, this method is used to restore the financial system of the state after a crisis or in the presence of a significant deficit in the balance of payments.
Revaluation is the exact opposite method of reforming the monetary system. It consists in increasing the state of the gold content in the minimum monetary unit. In fact, the exchange rate of the national currency is increasing in the world financial market. Revaluation is a rare occurrence in the world of money. As a result of revaluation measures, the prices of exported goods rise, thereby reducing the country's international competitiveness. However, this method helps to curb the growth of the money supply by limiting the import of foreign capital into the country.
The last type of monetary reform is denomination. Its essence lies in the reduction by the state of the nominal value of money. In its elementary form, denomination can be represented as striking out zeros, in which 100 or 10, or even 1 of 1000 monetary units are obtained. All types of monetary transactions are recalculated in the established ratio: tariffs, prices, wages, etc. Denomination streamlines the monetary system after inflation and simplifies the procedure for internal financial settlements.
Carrying out a monetary reform can be considered effective if its results are preserved for a long time. The new monetary unit needs to be supported by a set of government measures to improve monetary policy as a whole.
