Lawmaker Choi Woon-yeol suggests a redomination

Park Seung, former governor of the Bank of Korea, had secretly pushed forward a redenomination (the process of changing the face value of banknotes) in July 2002. After a full year of research, he suggested a plan to change 1,000 won to 1 hwan, but the Roh Moo-hyun administration did not accept it in concerns for economic repercussions. Mr. Park still thinks that the later the redenomination takes place, the worse it is. Lee Ju-yeol, the incumbent governor of the central bank, was hit by a harsh criticism after mentioning that he agrees to the necessity of a redenomination during a government inspection last September. He later withdrew it by saying he meant “in theory”.

Redenomination is the process of lowering the face value of a currency while preserving the same real value. For instance, if KRW is denominated by 1/1000, KRW 1000 will become KRW 1. Denomination enhances the convenience of transactions, raises the reputation of the currency against other currencies, streamlines accounting, but at the same time costs enormous money to issue new banknotes and change the system, and causes social anxiety. Turkey has successfully denominated its currency by 1/million in 2005, but Mozambique (2006) and North Korea (2009) are examples of failed denomination.

South Korea has maintained the same face value of its currency for 54 years since 1962, when 10 hwan was changed to 1 won, although its gross nation income and per capita income grew by 4,045 and 2,120 folds, respectively. It is the only OECD member with a four-digit exchange rate to dollar. Korea’s gross net asset reached 12,359 trillion won, an unfamiliar number for normal people to even read properly. Some coffee shops are carrying out a “self-denomination,” for example by marking 4,500 won as "4.5" in their menu.

Lawmaker Choi Woon-yeol of the Minjoo Party, who was a professor at Sogang University, proposed the need of conducting a redenomination to reduce social cost and legalize the underground economy caused by the high exchange rate of 1,000 to a dollar. It is indeed a sensitive issue, which must be decided upon public agreement. However, it already seems far overdue for starting social discussions on a redenomination that suits the size of our economy. Mr. Choi suggested a rate of 1 to 100, but more pros and cons should be discussed compared to a rate of 1 to 1,000 or 1 to 10.

권순활논설위원 shkwon@donga.com