Iran is planning to overhaul its currency. On Sunday, Iran's parliament revived a plan to adjust the country's currency denominations. The present Iranian currency, the Rial, will continue to exist. But it will lose four zeros. So, a 10,000 Rial note will become 1 Rial instead.
While this may seem like a drastic change, when you dig a little deeper, it all starts making sense. The first thing to understand is the absolute depreciation of the Rial over the decades. The Rial became Iran's official currency in 1932. Back then, about 12 Rials were worth 1 US Dollar. But in recent days, a single dollar has breached the million Rial mark. International sanctions have battered Iran's economy.
The Islamic Republic is cut off from the international banking system. Countries and companies are penalised for trading in Rial. That makes the Iranian currency effectively worthless outside the country. The constant threat of additional sanctions also makes the Rial extremely volatile. Exchange rates can surge at the drop of a hat. Or a throwaway comment by Western leaders. The constant instability has caused the Rial's value to plummet over the decades. This has led to hyperinflation in Iran.
Over the years, Tehran has resorted to printing ever higher denominations of money. So that people don't have to carry crates of cash to pay for basic goods. Iran recently released a million Rial note. With denominations going so high, the government decided it was time for a change. That's why it's getting rid of 4 zeroes from the end of every note and coin.
And there's a logic behind dropping 4 zeroes. It's because the common people are doing it already. While the largest official currency denomination is the Rial, Iranians also have an informal denomination. It's called the Toman. One Toman is equal to 10 Rials.
On the ground, people often quote prices in Tomans. So, if a cup of tea is 10,000 Rials, the merchant may say it's 1,000 Tomans. If a cab ride costs 10 million Rials, the cab driver may ask for 1 million Tomans instead. So, Iranians are already removing one zero in everyday conversations.
And it doesn't stop there. Because the prices reach the tens of thousands regularly, Iranians have taken to just dropping the word "thousand" from their speech. So the cup of tea for 10,000 Rials? The seller may just say it costs "1". One zero omitted because of the Rial to Toman conversion. And 3 zeroes dropped because it's redundant to say thousand after everything. That means average Iranians are already used to removing 4 zeroes from every monetary transaction. The government is just planning to formalise this system.
The Iranian government had soft-launched the shift a while back. Newer currency notes have the last four zeroes printed in a different, lighter colour. Four zeroes are omitted from the International Number System on existing notes. So, Tehran hopes that the change won't come as a shock. Or cause any major disruption.
Iran's move seems practical, but it isn't a real fix for the country's precarious economic condition. As long as international sanctions continue to cripple trade, the Rial's value will continue to deteriorate. And ordinary people will continue to suffer. No matter how many new notes Tehran prints.
