Redenomination of the Dollar

Discussion in 'Economics' started by PocketChange, Nov 6, 2009.

  1. One just needs to look at history to see the dollar faces certain redenomination.

    When financial transactions are in billions and trillions the zeros become unwieldy.

    The only saving grace to the dollar has been its use as an anchor currency. Recent events have started the proverbial wheel in motion removing the dollar as an anchor currency.

    Remember the Mexican Peso?
    Throughout most of the 20th century, the Mexican peso remained one of the most stable currencies in Latin America, since the economy did not experience periods of hyperinflation common to other countries in the region. However, after the Oil Crisis of the late 1970s, Mexico defaulted on its external debt in 1982 and experienced several years of inflation and devaluation until a government economic strategy called the "Stability and Economic Growth Pact" (Pacto de estabilidad y crecimiento económico, PECE) was adopted under President Carlos Salinas. On 1 January 1993, the Bank of Mexico introduced a new currency, the nuevo peso ("new peso", or MXN), written "N$" followed by the numerical amount. One new peso, or N$1.00, was equal to 1000 of the obsolete MXP pesos.

    The US is defaulting on its external debt obligations... Making interest only payments whether mortgage, credit cards or government debt generally digs a ditch too deep to escape from.

    In recent times a number of currencies anchored to the dollar have been redenominated:

    As an Extreme... Take a look at the speed of collapse of the Zimbawe Dollar

    2/2009 ZWL = 1000000000000 ZWR
    8/2008 ZWR = 10000000000 ZWN
    8/2006 ZWN = 1000 ZWD
    The first Zimbabwe Dollar from August of 2006 - February 2009 devalued from
    1 to 0.00000000000000000000000001
    (25 zeros!) and suspended indefinitely on 12 April 2009. Obviously this is an extreme case but the pattern of government printing money smells familiar... Z$ 1 billion = 1 egg. has Chronology of currency redenominations.

    We have already for the most part eliminated 2 decimals removing cents.

    You really can't leave your house with less than $50. I estimate a 50/1 redenomination is in order and will be accelerated by the rapid devaluation as the dollar gets dropped as the anchor currency and means for settling oil contracts.