On May 4, Iran’s parliament approved plans to replace the rial, the national currency, by shaving four zeros off the end and renaming the primary bill the toman. Each toman will be worth 10,000 rials. The currency changes include creation of the parseh as a smaller currency. One toman will be worth 100 parsehs.
“Eliminating the four zeros is a necessary action to simplify financial transactions,” Ali Rabiei, a government spokesman, said on Twitter. The move reflects the massive devaluation of the rial since the 1979 revolution, when one dollar was worth 70 rials. On May 7, 2020, one dollar was worth 162,500 rials at the free market rate.
20,000 rial bill
After the Trump Administration reimposed economic sanctions, in August and November 2018, Iran’s currency depreciated by roughly 60 percent. By September, it plunged to 190,000 rials against the dollar. The rial recovered value slightly in 2019 but fell again after the outbreak of the COVID-19 pandemic in February 2020.
The move has been in works since Abdolnaser Hemmati, the Central Bank governor, proposed re-denominating the currency in January 2019. He said that the changes would stabilize Iran’s foreign exchange market and simplify financial accounting. Supporters of the plan said that the move would have a positive psychological effect on Iranian consumers who have watched their life savings lose value for years—even if the actual value didn’t increase.
But one economist warned that the change could exacerbate inflation. “The change of the currency as well as dropping too many zeros will inadvertently create unnecessary fluctuations in the economic and social structures and will even fuel the inflation,” economist Saeed Laylaz told the Financial Times. “The Central Bank will drop four zeros but the inflation will quickly bring back two of the zeros.”
The proposed changes will take effect after approval by the Guardian Council, the body that oversees the legislature. The Central Bank will then have two years to phase out the rial.