Drop the Lop ~ Break It Down

Lop Knot Untied

Many naysayers are mistakenly convinced that Iraq will LOP 3 zeros off the face value of their currency, in essence causing a 25,000-dinar note to take on the value of a 25-dinar note.  The purpose of this web site is to show that this will not be the case.  The 25,000-dinar notes and the 25-dinar notes will co-exist.  Hence, the 25,000-dinar note will be worth 1000 25-dinar notes.  In like manner, the 10,000s & 10s will co-exist as will the 5,000s & the 5s along with the 1,000s and the 1s … as they all should, simply put, straight-forward to our normal way of thinking.  4-5s = a 20, 5-20s = 100, etc.

Is it a LOP or an RD, aren’t they the same?

Some, again, erroneously, are of the opinion that redenomination (RD) and LOP mean the same thing.  In reality, redenomination actually has nothing to do with the value of the currency in question.  In redenomination, yes, the numbers in face value of the currency change, but, not necessarily to make them smaller.  This method is often used to add zeroes as well.  The misundestanding is in the fact that a LOP assumes a decrease in the value of the currency that is reflected in the numbers that appear on the new currency.  If not for this fact, then yes, a LOP and RD would be the same thing.  But, Iraqi officials announced their plans last year and have specifically called it a redenomination.  You see, they have been trying to do this for some time, but, they don’t know how because it’s never been done before in the face of a global economic restructuring project.
In a LOP, the upper denominations take on the value of the lower denominations so that they both have the value of the new lower denominations, essentially, dropping zeros out of the face value.  This might be done in the case of hyperinflation as a way to catch up with inflation.  The old and the new can not co-exist.  Holders of the old currency are required to bring their high denominations in to a bank or money changer and have them replaced with the new, lower denominations.  Usually, there is a time limit to do so and after that period expires, the high denominations become obsolete and are no longer usable.  That is how a LOP works.  By the way, Iraq is not experiencing hyperinflation.
Conversely, in Redenomination, both upper and lower denominations co-exist with different values.  The higher denominations have a value equal to a multiple of the lower denominations.  During a Redenomination period, the high denominations are gradually drawn out of circulation and either vaulted, used to facilitate large transactions between banks or destroyed.  This is what we did here in the United States.  $10,000 notes still exist, they’re collector’s items, but they’re still legal tender for ten-thousand dollars. Read more…..
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