The measure calls for fundamental change to the national currency, including changing the name of the monetary unit from the official rial to the popularly used ‘toman’. It stipulates change in the nominal value and the face of bank notes and coins, the government website dolat.ir, reported.
“The new national currency toman will be defined to substitute the rial. Each toman will be equivalent to 10,000 rials,” the website said.
Despite the fact that rial is the official currency, people use toman in informal transactions (1 toman = 10 rials), Financial Tribune reported.
According to the website, the redenomination is being discussed in the Cabinet and the economic commission [of the government] is conducting feasibility studies.
The concept was first floated in January by CBI boss Abdolnasser Hemmati in a meeting with a group of lawmakers.
Hemmati said the CBI had proposed to the government the lopping off four zeros from the rial. If approved the proposal should go the parliament to become law.
The intention, among other things, is to facilitate transactions, cut the cost of printing banknotes and coins, and enhance the efficiency of the monetary system.
Galloping inflation and rapidly declining purchasing power, the ballooning volume of banknotes in circulation, hassles of using large digits in financial transactions, the fading facial prestige of the rial against other currencies, and popularity of the toman among the masses are seen as other motives behind the plan.
The notion of getting rid of zeros from the fast tanking rial has appeared, disappeared and reappeared time and again over the years.
The government sent a measure to the Majlis in 2016 to this effect and as part of a central bank bill to drop one zero. Nothing happened.
Comparing the inflation rate as measured by Consumer Price Index in the previous fiscal (2018-19) with numbers reported for inflation half a century ago, the government website said the index has grown 2,743 times.
This is while the biggest banknote, the 500,000-rial ‘Iran Check’ has grown only 50 times in comparison to the biggest banknote (10,000 rial) of yesteryears.
“The [nominal] value of the banknotes has not been adjusted in proportion to the inflation rate,” the report added.
The CBI has proposed two years as the transitional period for the currency change. After coming into effect, toman will take the place of the rial as official currency and all the official papers and contracts based on the rial will be redrafted.
Effects
The website forecast possible effects of the measure on economic variables such as the inflation rate, bank deposits and purchasing power, saying the effects would be dissimilar.
Lopping off zeros will not have any potential effect on the inflation rate. However, as adjusting to the new currency involves some prices to be in round numbers there are fears that some businesses could abuse this development.
Bank deposits of people and their purchasing power would not be negatively influenced by the redenomination either.
Regarding the non-influence on less zeros on the purchasing power, the report said buying power, as a rule, is largely impacted by liquidity levels and its volume compared to economic growth.
The CBI in January unveiled a new 500,000-rial Iran Check with four faded zeros. The fact that four zeros on the money are pale was construed by economic experts and analysts as the first step toward lopping off zeroes.
In designing the new checks, four zeros on the top-right of the check are printed in faded color than the color of the first two figures. Also, the figure ‘50’ is conspicuous on the bottom-right.
The head of the Majlis Economic Commission Mohammad Reza Pour-Ebrahimi said earlier that the initial plan was to lop one zero off the rial but as dropping zeros is a costly scheme, dropping four zeros instead of one seemed more reasonable.