Demonetization

DEFINITION of 'Demonetization'

Demonetization is the act of stripping a currency unit of its status as legal tender. Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.

BREAKING DOWN 'Demonetization'

A recent example of demonetization occurred when the nations of the European Monetary Union adopted the euro. In order to switch to the euro, authorities first fixed exchange rates for the varied national currencies into euros. When the euro was introduced, the old national currencies were demonetized. However, the old currencies remained convertible into euros for a while so that a smooth transition through demonetization would be assured.

RELATED TERMS
  1. MMK (Myanmar Kyat)

    The currency abbreviation for the Myanmar kyat (MMK), the currency ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank ...
  3. Currency

    Currency is a generally accepted form of money, including coins ...
  4. PHP (Philippine Peso)

    The currency abbreviation or currency symbol for the Philippine ...
  5. Currency Pair

    The quotation and pricing structure of the currencies traded ...
  6. Counter Currency

    The currency used as the reference or second currency in a currency ...
Related Articles
  1. Trading

    How Do You Make Money Trading Money?

    Making money in the foreign exchange market is a speculative process. You are betting that the value of one currency will increase relative to another.
  2. Trading

    Forex Tutorial: Reading a Forex Quote and Understanding the Jargon

    One of the biggest sources of confusion for those new to the currency market is the standard for quoting currencies. In this section, we'll go over currency quotations and how they work in currency ...
  3. Trading

    The 6 Most-Traded Currencies And Why They're So Popular

    Every currency has specific features that affect its underlying value and price movements in the forex market.
  4. Trading

    4 Of The Most Popular Traded Currencies

    Every day, trillions of dollars trade in the forex market. Here are a few of the most popular currencies, and some characteristics for each.
  5. Markets

    What Happens in a Currency Crisis?

    A currency crisis comes from a decline in the value of a country’s currency.
  6. Trading

    Buying Euros as a Long-Term Investment: Risks and Rewards

    Learn about the potential risks and rewards of long term investing in the euro and the current status of the European Union's financial markets.
  7. Markets

    Why Gold Is No Longer the Currency King

    Although a gold standard seems like a good idea, looking at its role in U.S. history reveals that it may not be the beacon of stability that it claims.
  8. Markets

    Why the Euro Failed to Become the World's Reserve Currency

    Examine the current state of the U.S. dollar as the world's reserve currency; learn the major reasons why the euro has failed to replace it in that capacity.
  9. Trading

    The Effects Of Currency Fluctuations On The Economy

    Currency fluctuations are a natural outcome of the floating exchange rate system that is the norm for most major economies. The exchange rate of one currency versus the other is influenced by ...
  10. Markets

    Why Countries Keep Reserve Currency

    Central banks and financial institutions hold large amounts of foreign money as their reserve currency.
RELATED FAQS
  1. When and why did the euro make its debut as a currency?

    On January 1, 1999, the European Union introduced its new currency, the euro. Originally, the euro was an overarching currency ... Read Answer >>
  2. What are key economic factors that can cause currency depreciation in a country?

    Read about the causes of currency devaluation, and find out how to differentiate between relative and absolute currency devaluation. Read Answer >>
  3. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
  4. Why doesn't England use the euro?

    Understand why the United Kingdom has opted to not join the eurozone in adopting the euro over the pound sterling as its ... Read Answer >>
  5. How do you make money trading money?

    Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in ... Read Answer >>
  6. What is the value of one pip and why are they different between currency pairs?

    In forex markets, currency trading is done on some of the world's most powerful currencies. The major currencies traded are ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center