Ok to illustrate what I’m trying to say, I’d like to use a fake example: (I’m only talking for actual bills here…electronic money is just converted automaticly if I understand correctly…)
Let’s say that when France switched to the Euro, they had 50 billion francs produced and exchanging around, and for the sake of the example let’s say 5 francs = 1 euro.
So it emits 10 billion euros, and take francs for euros until a cutoff date at which point they don’t accept anymore francs at all…ever…
but they only exchanged 40 billion francs, 10 billion francs were either destructed, kept for collection, lost, whatever…so they have 2 bilion euros in bank.
So I would like to know:
What do they do with that money?
2.If they just keep it and use it as state expenses, would it be wise for certain countries to just index their money every now and then (let’s say your currency is worth 1/10000000000 USD and you want to just make a new currency that is worth 1/100 USD and that will be exchanged equivalently with the old one until a cutoff date) just issue the new money every now and then (evry 30 or 40 years) that way recuparating all the destroyed money as state ownership and using it for the good of the country.
I’m not sure I make sense, I’m tired, but I hope you get the idea…
Do they get to keep the money that wasn’t exchanged? Of course.
Is this a good idea, to do this every so often? I don’t think so. It might put your country in the category of some(South American comes to mind) who are forced to do this because they have such unstable economies. The International Monetary types don’t take lightly to playing with the value of your currency. If you did this just to gain a short-termed advantage, the members of the World economic community might downgrade your currency as unstable. Not good.
Well…First they estimated the amount of money which would never be exchanged. And apparently they were on the mark in their estimates (due to experience, since new banknotes are issued all the time, and they know what part of the older ones never come back to the issuing central bank…They also estimated how much money would be kept by people as souvenirs or by collectors). By the way, I read the amount which had not been and is expected to never be exchanged, and though I don’t remember it, it was a really really big sum. I was amazed. Especially considering the total for all european countries.
Second, the amount of money printed/minted depends on what is needed by the economy. Actually, the situation isn’t really different when a new currency is introduced. Central banks print/withdraw money all the time. They can even print and stockpile money if they want to. As long it’s not circulating, it’s not “real” money. Just a piece of paper which could potentially be used as a currency. So, even if the country had printed much more Euros than needed, by mistake, it wouldn’t make a difference. These unused bills piled in the central banks vaults have no real value. It’s not money magically created which could be spent by the government. It’s just paper, which can be used someday in the future. Or not.
Actually, the issue is the reverse. The money which is circulating is actual money. In your example the francs which aren’t anymore a legal currency but never have been exchanged. And this money is a debt the central bank has to the state (circulating bills are “certificate of debt”, sort of). So, the government will indeed receive this amount, though not exactly for the reasons you gave.
To be more precise, according to french law (but of course it depends on the country), “dissapearing” money is reimbursed to the state after 10 years. In the case of the euros, the french government asked for an advance.
Concerning your second question : actually, changing currency on a regular basis wouldn’t have much consequences. The rate of money destruction wouldn’t be different, and I doubt people would keep a lot of samples of former bills if the currency was changed every 6 months. More likely, they would exchange all of it each time. So, yes, it could provide a little income to the state, and even a significant one with a sudden and massive change, like in the case of the Euro. But it can only happen once in a long while, and a government can’t make it a policy and expect to get much out of it.