In the last few years, a number of countries in the former Soviet Union and Eastern Europe have become independent or have regained their independence. Many have chosen to issue their own currencies, and more are likely to do so. Drawing on these and earlier experiences, this paper summarizes the main policy and institutional arrangements necessary for the introduction of a new currency and discusses the key features of, and procedures for, the conversion.
The paper is designed as a working document for those involved with currency reforms to help ensure that all the necessary steps are taken before, during, and immediately after a new currency is introduced. It focuses on issues directly related to the introduction of a new currency. In many areas, checklists present the steps that must be taken and the most reasonable options. Other related issues, for example, supporting financial sector legislation, will arise whether or not a country remains in a wider currency area.
First, the paper discusses the main macroeconomic and operational measures required to prepare for the orderly transition to the new currency, including decisions regarding the choice of exchange regime, the issuance of coupons, and the costs and benefits of currency reforms. The next section covers issues relating to the production of the new currency bank notes. Next, the main features and terms of the conversion are discussed, as well as certain special issues, such as speculative inflows and the treatment of banks’ customers and old currency contracts. The last section covers the operation of the foreign exchange market and maintenance of exchange rate stability in the period immediately following the introduction of the new currency. An appendix covers the technical aspects of currency handling, accounting, and management.