A superb research note by Åke Lönnberg of IMF.
Turkmenistan issued its new currency -Manat in 2008-09. The old currency was also under the same name. However, there were two parallel exchange rates running leading to problems in economy. As part of its overhaul of economy, the government also decided to issue a new currency:
Most countries have their own currency, which is an important part of their national identity, though some belong to a monetary union and share a common currency with the union’s members; others use that of another, often larger, country.
On occasion, a country must introduce a new currency. Turkmenistan, the former Soviet republic in central Asia, decided in 2008 to undertake a currency reform.
A major gap between the official exchange rate and the informal or market rate meant that Turkmenistan’s price system had become complex and inefficient. This, in turn, created complexities in accounting and statistical reporting. So the government decided to introduce a new currency before launching market-oriented reforms. Currency reform was regarded as the foundation for further strengthening the macroeconomic framework, particularly monetary transmission: the more the population relies on the local currency rather than U.S. dollars, the more control the government has over macroeconomic policy.
The total and orderly overhaul of Turk?menistan’s currency system in 2008–09 in many respects serves as a model for other countries.
It was a huge exercise and many things had to be overseen.
Introducing a new national currency is a highly complex project, which requires a well-functioning accounting system. Throughout the various stages, tested systems must be in place for independent auditors to safeguard the integrity of the currency reform, by ensuring correct reporting and accounting of the currency exchange. Failure in this area is not only costly but also potentially devastating to the currency reform’s reputation.
Important as all these preparations are, the success of a currency reform depends just as much on a successful public education campaign. The central bank needs to coordinate this campaign with other agencies, financial sector representatives, merchants, and the general public. A delicate balance must be struck between providing sufficient public information and the need for confidentiality to avoid releasing clues to counterfeiters that could be used to undermine the integrity of the new currency. The information campaign should encourage people to deposit their cash currency in accounts at banks. The campaign must make it clear that once the currency reform is initiated, account holders can withdraw their money in the form of new banknotes. A second important point for the public education campaign is timely information on the stages of the currency reform to discourage a run on banks with temporary liquidity problems.
In Turkmenistan, the central bank conducted a proactive public communications strategy that began early in the currency reform. The terms of the redenomination were carefully defined and announced in advance. An awareness campaign was carried out throughout the country. Booklets, illustrating the new banknotes to be distributed, were published in national and local newspapers along with explanatory articles. In addition, pocket-size cards comparing the denomination of old and new manat were distributed to the public. And the Central Bank of Turkmenistan set up a phone hotline to answer questions from businesses and the public.