Denomination refers to the face value of currency and securities. It may also be used for the face value of coins, as well as gift certificates or cards.
In the context of securities, common denominations are $1,000 and $5,000, as well as multiples of these values.
Should there be a replacement of an old unit by combining the value of a number of old units in order to come up with a new unit, this is called redenomination. One of the reasons for this to be done is inflation. In such a situation, the ratio is higher than 1. The ratio is usually a power of 10, such as 100 or 1,000. This process is known as “cutting zeroes.” The ratio can go as high as one million or more, reaching millions or billions. This may happen in the event of hyperinflation. In such situations, scientific notation becomes necessary. Long and short scales may also be used for the purpose of ensuring clarity.
If the economy has been undergoing chronic inflation, the monetary authority will have to decide on whether to adopt a small or large redenomination ratio. If the redenomination ratio turns out to be too small, a higher one may be used later on. This, however, entails additional costs and effort.
On the other hand, if the redenomination ratio used turns out to be too large, then prices may turn out to be too low or too high depending on how the economy progresses or on the changes that may take place within the cycle.
