Iranian Rial Revaluation Crosses One Hurdle

EghtesadOnline: The Majlis Economic Commission on Wednesday approved the provisions of a monetary bill based on which four zeros will be shaved off the national currency.

News ID: ۷۸۵۴۳۸

29 February 2020

As per the proposed ‘Reforming Monetary and Banking Law’ the monetary unit will change officially from the rial to the commonly used toman, the Central Bank of Iran website reported.

The rial redenomination bill is an initiative by the government and was sent to the parliament last August, after being reviewed and approved by the Cabinet, according to Financial Tribune.

It has to be debated and endorsed by the chamber to become law.

As per the proposal, the minor monetary unit of the new currency will be the ‘parseh’. Accordingly, if the bill becomes law, 10,000 rials will be equal to 1 toman and each toman  100 parseh.

The parity rate of foreign currencies too will be set and adjusted as per the new currency system.

After the rial revaluation bill is ratified by parliament, the government will have maximum two years as a “transition period” to implement the law and replace the banknotes and coins.

Both rial and toman will be valid during the transition period.  After that phase, all financial commitments based on the rial will be fulfilled in toman.

Galloping inflation and the rapidly declining purchasing power, the ballooning volume of banknotes, daily hassles of using large digits in financial transactions, declining status of the rial against all major currencies and popularity of the name toman are seen as reasons underpinning the decision to change the monetary unit.

Bank officials also point to the decline in the cost of printing banknotes, minting coins and enhancing efficiency of the lethargic financial sector as other objectives behind the oft-floated proposal.

8 Billion Banknotes

According to CBI, there are 8 billion pieces of banknote circulating in the country and regularly impose high costs of printing new money on the government.

Defending the bill, the CBI Governor Abdolnasser Hemmati said earlier that the banknotes in circulation could be reduced to 3 billion pieces under the new monetary system.

Observers warn that lopping off zeros from the national currency should be preceded by a series of robust structural reforms in order to produce the desired results, otherwise the outcome would be more inflation.

They say introducing a new currency format will have zero direct impact on the economy unless it is shown to be part of a comprehensive and sustainable effort to reduce inflation and rewrite economic management.

Holding a similar view, government and banking officials have concurred that getting rid of zeros does not intend to make deep changes in macroeconomic variables, such as improving purchasing power and taming inflation.

The idea of less zeros has been floated for almost 16 years, but has always been put on the back burner for hitherto unknown reasons.