Purchasing power versus redenomination – What distinguishes the two? In a redenomination, purchasing power remains unchanged. It primarily enhances “ease of use.” A straightforward redenomination involves removing zeros and issuing new currency notes; for instance, 1,000 old dinars convert to 1 new dinar, or 10,000 to 10, depending on the number of zeros eliminated. It’s that straightforward. Prices, salaries, and contracts are adjusted by the same factor on paper. However, this process does not inherently improve the economy’s productive capacity, export revenues, reserve coverage, or institutional confidence. Redenomination does not address these issues. If the fundamental economic conditions are weak, the new currency can depreciate just as the old currency did. History is replete with instances of zero removal, where inflation persisted despite the new currency. I don’t believe Iraq is an exception to this trend. [Post 1 of 2]
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