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Denomination

What is Denomination?

Denomination can apply to many things, such as religious groups, playing cards, weights, measures, and currency. In the context of currency, denomination is a classification of a type of currency, such as banknotes or coins, that describes the value.

For example, if you have five $20 bills, you have $100 in $20 denominations, and all your banknotes are of the same denomination. When the word denomination is applied to money, you might hear terms like ‘lower or smaller denominations’ and ‘higher or larger denomination.’

For example, a cashier might ask if you have a bill in a lower or smaller denomination if you try to pay for a pack of gum with a $100 bill.

Denomination Explained

With currency, there is typically a main, or base unit, and then sub-units that are fractions of the main, or base unit. In some countries, there can be several levels of a sub-unit.

Most countries now have denominations were the main, or base unit, is divided into 100 sub-units, or denominations. For example, the $100 dollar bill is divided into 100 sub-units with the $1 bill. There are other sub-units, however the $1 bill is the smallest denomination in banknotes. The $1 bill can then be divided into 100 pennies, with pennies being the smallest coin denomination.

Decimal currency is when the ratio between the main, or base, unit and the sub-unit, or denominations are in powers of 10.

The creation of any new currency today faces what is referred to as the ‘optimal denomination problem,’ which is deciding the denominations to be used for the coins of the new currency to minimize the need to make change. Most decimal currencies use the 1-2-5 series of coins to make change, however another currencies might require less coin denominations to make change.

When naming currencies and units of currency, or denominations, in most cases they were named as that amount of a type of precious metal.

The Secretary of the Treasury, and officials at the Federal Reserve Board stopped distributing currency in denominations of $500, $1,000, $5,000 and $10,000 during World War II, because the main purpose for these denominations was for bank transfer payments. With more secure transfer technologies were created, the denominations were no longer necessary.