Foreign currency exchange questions.

[freakazoid]

Figured this should go here, but if not then feel free to move. I grant you permission.

I've heard some people talking about investing a bit in the Iranian Dinar, apparently they are supposed to be re-denominating their currency by changing the name and removing 3-4 zeros. Supposedly this should be good for anybody who holds the currency now by making them richer. From what I have been told this seems to make since but I was curious about what the far smarter people than me on APS thought about it. What say you people of APS.

 

[zahc]

Wouldn't the exchange rate from dinar to everything else rapidly move to match that revaluation? Like in ms?

I don't have any hope of beating out the high-frequency traders and their low-latency links.


Old economics joke:

An economics professor and student walk into a bar.

The professor and student both notice a $100 bill on the ground. The professor walks right past it to the bar.

Student: "Aren't you going to pick up the $100 bill?"

Professor: "If there was a $100 bill on the ground, someone would have picked it up already"

[cordex]

I have heard this (or varients of this) for years. Don't they typically issue new types of notes that have to be bought with old notes when they start slashing zeros? Then the old notes become Monopoly money.  I have heard coins (which are much more expensive to replace) are typically the only denomination that retains value.

Edit: http://www.armedpolitesociety.com/index.php?topic=37633.0

[freakazoid]

I'd imagine that they would simply start removing them from circulation.

[cordex]

I'd imagine that they would simply start removing them from circulation.

To my knowledge, whenever there have been drastic revaluations, new revalued bills are introduced to prevent just the kind of speculation you mentioned.  Sometimes they circulate alongside the old bills, but the old bills maintain their previous value (or lack thereof).  So if you've got a $1,000,000,000,000 bill that is worth New$1, your $1,000,000,000,000 bill will still buy New$1 worth of goods.

Of course, economic growth can revalue an existing currency, but that is a very slow process that is often opposed by central banks.

[brimic]

Why not pick something with more zeros behind it?