How do countries cancel or replace their currencies? And why does Israel intend to cancel the 200 shekel category? | economy

The declaration of Israel has sparked its intention to cancel the circulation of the 200 shekels category, a widespread controversy among citizens and merchants within the Gaza Strip, amid fears of complex economic repercussions. Any measure of this kind without coordination with the relevant Palestinian authorities may lead to serious economic repercussions, as well as that it affects the basic rights of the Palestinian people.

The Israeli Foreign Minister, Gahmoun Saar, initiated the call to take this step, before Prime Minister Benjamin Netanyahu expressed his support for her, describing her as “excellent”, and announced his intention to discuss the matter with the governor of the central bank, according to several Hebrew media recently revealed.

The step raises many questions, the most prominent of which are:

• How do governments replace their currencies or cancel them? And why?
• What are the repercussions of replacing a currency category on the market?
• What are the steps used when replacing or canceling a currency category?
• What is the impact of the Israeli decision on the Gaza Strip?
• Does Israel have the right to implement this decision?

These and other questions are what we will try to answer in this report based on a number of specialized sources such as the International Monetary Fund, the European Central Bank, the Carnegie International Peace Corporation, the NPR.org, the “Academia” platform (ACADEMIA.EDU) and the “Investobide” platform and others.

Why do countries replace or cancel categories of their currencies?

Most countries have their own currency, which is an important part of their national identity, although some of them may belong to an international union, and share a common currency with members of the European Union as an example; While other countries use the currency of another country, often larger and more powerful, such as many countries that use the dollar or euro in their countries, and sometimes, a country may have to abolish a currency or replace a new currency in it, in a measure aimed at economic reform, according to the International Monetary Fund.

The cancellation or replacement of a currency is the process of stripping a cash unit from its description of a legal currencyAnd this occurs whenever a change in the national currency occurs for various reasons, and the current shape or cash shapes are withdrawn from trading to be replaced by the most often monetary papers or new metal currencies, and sometimes, the state replaces a new currency in the old currency in all its categories, according to the “Investubia” platform.

Countries cancel groups of their currencies or replace them for multiple reasons, often related to economic conditions, monetary policies, and technical developments.

Here is the most prominent of these reasons, supported by realistic examples:

1- Control inflation

When the currency loses a large part of its value due to inflation, excessive inflation, or wide counterfeiting of the current currency, according to the International Monetary Fund, states resort to the so -called Redenometity to simplify financial transactions and reduce the number of zeros in cash categories.

For example, Azerbaijan re -evaluated its currency and became a new “1 Matan” equivalent to 5,000 old, with the aim of facilitating accounting processes and enhancing confidence in the national currency.

2- Combating forgery and improving safety

Some countries issue new cash categories with advanced designs and safety technologies to combat forgery. For example, in 2016, India announced the withdrawal of 500 and 1,000 rupees of trading and replacing it with new categories containing improved safety features, as part of the anti -counterfeiting and corruption campaign.

3- Transforming into a new currency or economic modernization

Upon adopting a new currency or updating the monetary system, the old groups may be replaced, for example in 2002, many European countries adopted the euro currency, which necessitated the withdrawal of old national currencies from trading and the euro replacing it, according to the European Central Bank.

4- Reducing production and trading costs

Low -value cash categories may be withdrawn when the cost of their production becomes higher than its nominal value, for example, in 2012, Canada decided to withdraw the penny currency (1 cent) from trading due to the high cost of its production compared to its value.

5- Political or economic reasons

In some cases, the process of canceling or replacing the cash groups is used as a political or economic tool. For example, during World War II, the Belgian government withdrew in 1944 banknotes that exceed 100 francs of trading as part of economic measures after liberation.

6- Encouraging the digital economy and reducing dependence on paper criticism

Some countries seek to reduce dependence on paper criticism and encourage digital transactions, and in this context, in 2023 Nigeria redesigned cash categories with the aim of enhancing the use of digital payments and reducing paper circulation.

https://www.youtube.com/watch?v=46wslbyjizg

How to cancel or replace a group of currencies?

The process of canceling or replacing a category of currencies is an accurate monetary procedure, and there are steps that are necessary to conduct this process or prepare the theater properly according to the International Monetary Fund, the most prominent of which are:

1- Planning and official announcement: The central bank begins with a comprehensive plan that includes the schedule, the replacement mechanism, and the period of allowing the trading of the old category.

2- Design and productionThe new category is designed taking into account modern safety elements, then the new currency is printed or denied according to internationally approved standards.

3- Distribution and awarenessNew criticism is distributed via banking networks, with awareness campaigns to educate the public in the new category and ways to replace the old category.

4- Pulling the old category: The central bank determines a period of time in which it allows the trading of the old category, after which it loses the legal capacity and withdraws from the market.

For example, Turkmenistan has successfully completed the process of entering a new currency in 2008, as it carried out a wide awareness campaign, and created a hot line to answer citizens’ inquiries.

What are the repercussions of replacing a currency category on the market?

There are challenges and effects accompanying the replacement of a new currency with an old one, and some of these effects are positive and some are negative, as the repercussions of this measure vary on markets according to the economic and executive context in each country.

Here are the most important positive and negative effects, according to the International Monetary Fund and the Investobide platform:

• Possible positive effects

1. Reducing fraud and tax evasionRemoving or replacing a currency may reduce fraudulent financial practices, as individuals will not be able to exchange illegal currencies with banks. This also includes limiting tax evasion, which contributes to pumping additional revenues into the state’s economy.
2. This may lead to a high gross domestic product over the long term due to the increase in tax revenues that are re -invest in the country.
3. Bridge The big between the official exchange rate and the informal market price, which raises the efficiency of the price system, and enhances the country’s total economic system.
4. The development of the banking systemThe cancellation of physical paper monetary trading also shows the development of the banking system, as digital currencies have become easier to reach, safer in storage, and easier to transfer ownership, and organized industries and companies often benefit from the ultimate transfer from the ease of transition.
5. Simplify financial transactionsReducing the number of zeros in a country currency contributes to facilitating accounting and financial operations, which enhances efficiency in economic activities.

• Possible negative effects

1. The sudden change in the currency may lead to confusion between citizens and merchants, which requires effective awareness campaigns from the state, as it may constitute a burden on citizens, especially those who have to convert a currency to another.
2. This is likely to stop the state’s gross domestic product during the conversion process.
3. The process of replacing the currency requires significant financial and administrative costs, including printing new currencies, modernizing old financial systems, controlling ATMs, and marketing changes to the public.
4. It offers new types of currency risks such as electronic crimes.

Back to Gaza

In Gaza, and in the context of citizens and merchants’ concern about the Israeli government’s direction to cancel the value of the 200 shekels category, there are questions that arise, the most important of which are:

• Does Israel have the right to make this decision?

Legally, the Bank of Israel has the authority to issue or cancel the coins, and this must be done based on clear professional justifications, and the Bank of Israel stressed in an official statement that it does not intend to cancel the 200 shekel’s banknote, indicating that there are no sufficient professional justifications to take, according to the Times of Israel newspaper.

However, any unilateral action of Israel in this regard is considered a violation of the economic rights of the Palestinians, especially in the absence of coordination with the relevant Palestinian authorities, which may be a violation of international agreements, especially the Paris Protocol that Israel signed with the Palestine Liberation Organization after the 1993 Oslo Agreement.

• What is the expected effect on Gaza?

The category of 200 shekels constitutes about 70% of the cash circulating in the Gaza Strip, due to its high value and the ease of its use in large transactions, and the abolition of this category without providing appropriate alternatives that will lead to many effects, according to a previous report by Al -Jazeera Net, the most important of which are:

1. A severe lack of cash liquidity deepens the crisis in the sector, which will be an additional blow to the fragile reality.
2. Traders and citizens will lose their capital, as they consist of a basis of this category of shekel, because they are the largest in their value.
3. A tremendous negative impact on the local economy in Gaza may exacerbate the economic crisis and increase the rates of poverty and unemployment in the war sector.

In general, the decision to cancel the category of 200 shekels without coordination with the Palestinian Authority will lead to dangerous economic and social repercussions in the Gaza Strip.