Sunday, 10 May, 2020

Why is Iran slashing four zeros from its banknotes?

Iran’s parliament has passed a bill to lop off four zeros from the country’s national currency, the rial. One of the reasons behind approving the motion is to improve the image of the rial on the international stage.

In a historic move, Iran’s parliament has approved a bill to slash four zeros from the country’s national currency.

The plan will gradually take the rial out of circulation in four years and will replace it with the toman. Each toman will be equal to 10,000 rials.

Iranian lawmakers say the move will help save billions of rials spent on printing banknotes.

The redenomination comes amid runaway prices and the degrading value of the rial against the US dollar, which is currently traded at over 150,000 rials in the open market.

Now knocking off four zeros will not only improve the image of Iran’s currency on the international stage, but will make it easier for people to transact without wasting time calculating the prices with many zeros.

In terms of the forex rates, Iran’s currency is expected to become more valuable. However, experts say it’s easier said than done.

One of the foreseeable outcomes of lopping off zeros from banknotes is higher inflation. Experts say with less zeros, any increase in the prices will take place with a higher ratio.

As the value of a currency depends on multiple factors, experts say removing zeros from banknotes alone cannot guarantee a better economy, and a proper backup monetary policy needs to be put in place to support such a move. 

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