Governments can always invent a new denomination. Mostly its been in the other direction (take off orders of magnitude) But the scenario you're citing isn't th

Governments can always invent a new denomination. Mostly its been in the other direction (take off orders of magnitude) But the scenario you're citing isn't the central issue when it comes to deflation. Deflation leads to a negative spiral because it pays off to defer any kind of spending - thereby slamming on the economic brakes. Notable example is Japan in 90s - deflation has been a major factor in its meagre growth then and even into the 2000s. The BoJ's unwillingness to adopt a sufficiently expansionary monetary policy likely exacerbated the problem