23 May 2024
Sunday 1 January 2017 - 09:55
Story Code : 245152

What's behind Iran's plan to redenominate its national currency

Sputnik- This year, Irans national currency, the rial, has seen several big drops against the United States dollar, reaching a record low in early-December.

At the time, it was also reported that the Iranian government had decided torevalue its rial tenfold and revert tothe currencys old name, the toman.

The current exchange rate ofthe Iranian currency is 32,376/$1. However, the government eyes redenomination ofthe rial, inan attempt toavert the costly process ofadditional currency issuance. Iranian economic analyst Hushyar Rostami explained that the redenomination planned byTehran is different fromsimilar attempts byother countries.

"When inflation rate is high the government wants todecrease it. There was a similar situation inTurkey, Argentina and Eastern Europe. The simplest option is additional currency issuance, butit is outdated. An optimal scenario is redenomination ofthe national currency," Rostami told Sputnik Persian. Currently, forexample, $10 is exchanged forhundreds ofthousands rials. Such an exchange rate seriously complicates accounting transactions inmajor companies and banks.

According tothe economist, if the government wants tofight high inflation rate and redenominates its currency it does not need tocarry outadditional money issuance. "What Tehran is considering is an example oftypical redenomination. The rial exchange rate againstdollar will not change. The banknotes will also remain unchanged," the economist said. The redenomination process is very expensive, and currently there is a discussion underway inIran onhow tohandle the situation.

"Some say that its better tocut one zero fromthe banknotes, other say that four zeroes should be cut. The estimated cost is $2.5 trillion. All factors should be taken intoaccount beforea final decision is made," Rostami said.

According tothe law, redenomination ofthe national currency must be reviewed bythe parliament. The process also involves the Central Bank and the national Finance Ministry. "Redenomination is crucial forthe Iranian economy because the country needs stimulated economic growth, a low and stable inflation rate and a predictable exchange rate," Rostami concluded.
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