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Demonetization on Five Continents

Around the world, several countries are currently undergoing demonetization, or currency reforms in which the government removes banknotes of a certain denomination from circulation and replaces them with new notes. Governments pursue demonetization for a variety of reasons, but some efforts go better than others.

CAMBRIDGE – Around the world, several countries are currently undergoing “demonetization,” or currency reforms in which the government removes banknotes of a certain denomination from circulation and replaces them with new notes. Governments pursue demonetization for a variety of reasons, and some of the recent initiatives are going better than others.

When demonetization is particularly dramatic and disruptive, it is often a signpost on the road to hyperinflation. This seems to be the case in Venezuela, where President Nicolás Maduro recently recalled the 100-bolivar note, and will replace it with new notes denominated at 500-20,000 bolivars.

Economists define hyperinflation as a pattern of monthly price increases that exceed 50%, which may happen in Venezuela in the next few months. Hyperinflation has been much rarer this century than in the twentieth century, and Venezuela will be the first country to experience it since Zimbabwe in 2008-09.

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