Introduction of a New National Currency: Policy, Institutional, and Technical Issues

IMF Working Papers, June 1, 1993

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Introduction of a New National Currency: Policy, Institutional, and Technical Issues

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Bibliographic details

• Authors: Hernán Cortés Douglas, Richard K. Abrams
• Published: June 1, 1993
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451846775.001

Overview and Purpose

• Authors: Hernán Cortés Douglas, Richard K. Abrams
• Publication date: June 1, 1993
• Series: Working Paper No. 1993/049
• Issue: 049
• DOI: https://doi.org/10.5089/9781451846775.001
• ISBN: 9781451846775
• ISSN: 1018-5941
• Pages: 38
• Summary purpose: To summarize the main policy and institutional arrangements necessary for the introduction of a new currency and to discuss key features and procedures for conversion; designed as a working document for those involved with currency reforms to ensure necessary steps are taken prior to, during, and immediately after the introduction of a new currency.

Main Themes and Structure

• The paper is organized in four parts:
  • Part 1: Macroeconomic and operational measures required to prepare for an orderly transition to a new currency, including:
  • decisions regarding the choice of exchange regime
  • the issuance of coupons
  • the costs and benefits of currency reforms
  • Part 2: Issues relating to the production of the new currency bank notes, including production and operational considerations.
  • Part 3: Main features and terms of the conversion, and special issues, including:
  • speculative inflows
  • treatment of banks’ customers
  • treatment of old currency contracts
  • Part 4: Operation of the foreign exchange market and maintenance of exchange rate stability immediately following the introduction of the new currency.
• Appendix: Technical aspects of currency handling, accounting and management.

Key Findings and Analytical Focus

• Draws on experiences from countries in the Former Soviet Union and Eastern Europe that became independent or regained independence and chose to issue their own currencies.
• Emphasizes the necessity of coordinated policy, institutional, and technical arrangements to ensure orderly currency introduction.
• Highlights operational and macroeconomic measures as essential preparatory steps.
• Stresses the importance of planning for physical currency production and secure handling.
• Discusses conversion mechanics and legal/contractual treatment of pre-existing obligations.
• Focuses on short-term exchange rate management and foreign exchange market operations after currency introduction.

Policy Recommendations (as described)

• Carefully decide and communicate the choice of exchange regime prior to introduction.
• Consider issuance of coupons as an operational tool where appropriate.
• Assess costs and benefits of currency reform in the national context.
• Plan and manage bank note production and distribution with attention to security and operational logistics.
• Establish clear rules for conversion of deposits, contracts, and financial claims to minimize disputes and instability.
• Prepare measures to limit and manage speculative inflows around the time of introduction.
• Ensure mechanisms to operate and stabilize the foreign exchange market immediately after the new currency is introduced.

Subjects and Keywords

• Subject: Banking, Currencies, Economic integration, Exchange rate arrangements, Exchange rates, Foreign exchange, Monetary unions, Money
• Keywords: Baltics, bank note, bank note printing contract, Central and Eastern Europe, country, Currencies, currency, currency bank notes, deutsche mark, Exchange rate arrangements, Exchange rates, exchange regime, government, government transaction, Monetary unions, single currency, WP

IMF Working Paper No. 1993/049, "Introduction of a New National Currency: Policy, Institutional, and Technical Issues" by Hernán Cortés Douglas and Richard K. Abrams, June 1, 1993.