In a recent move, Iran has proposed removing four zeros from the rial to address decades of inflation and economic challenges that have severely devalued the currency. The Economic Commission of Iran’s Parliament has approved the plan to eliminate four zeros. Once the parliament and the Constitutional Council give their final approval, Iran will implement the measure. Shamseddin Hosseini, the head of the Economic Commission committee, said the new currency would still be known as the rial, with one unit equivalent to 10,000 rials in current terms. He also said that rial would itself be made up of 100 gherans. Here’s why Iran is making that move…
Idea Behind Cutting Zero
Iran’s idea of cutting zeros is to curb the inflation that has broken through the borders in the country and to avoid the difficulty of people having to say millions and billions every time they buy products. Under this plan, 10,000 current rials will be converted to 1 new rial, divided into 100 qirans (or gherans). The goal is to streamline financial transactions and accounting by eliminating excess zeros in daily use.
The idea that this will make currency exchange easier makes sense, but it’s not a sure thing. Redenomination mainly aims to make local transactions and bookkeeping simpler by cutting down the number of zeros in large amounts, as the rial’s low value leads to large numbers.
The Idea: For example, 920,000 rials per U.S. dollar would become 92 new rials per dollar. This could make exchange rate calculations less cumbersome.
To Note..
The zeros are removed to simplify financial calculations, verbal and numerical transactions. It is also to lower the costs of printing banknotes. The currency’s value remains unchanged. Iranians commonly use the toman, where 1 toman equals 10 rials, for everyday transactions. The claim that this will make currency exchange easier is plausible but not guaranteed.
Iranian Rial And Value
Following the collapse of the nuclear agreement between Iran and the US, the US imposed severe sanctions on Iran in 2018. That is when the depreciation of Iran’s currency began to worsen.
∙ In 2015, the value was 32,000 rials per dollar.
∙ In 2018, the value was 1.35 lakhs due to sanctions. However, the official value was set by Iran at 42,000. 42,000 is still the official exchange rate.
∙ But by this year, the value has come close to 10 lakhs. The official value has not changed.
