The Iranian Parliament recently passed a bill that permits the government to eliminate four zeroes from the country’s currency, the rial. This law will also permit replacement of the rial with a new base unit of currency known as the toman. Once implemented, the national currency will change from the rial to the toman, equating to 10,000 rials.
Understanding Currency Redenomination
Currency redenomination is a process where a country revalues its currency due to substantial inflation and currency devaluation. It can also be triggered when a country adopts a new currency that is exchanged for the old at a predetermined rate. Simply put, redenomination is the exchange of old currency for new or altering the face value of existing notes in circulation.
Key Points Behind the Decision
Removing the four zeros is seen as a necessary action to simplify financial transactions. It will greatly reduce the need for Iranians to carry large amounts of rials for purchases, a result of rampant inflation. The bill awaits approval from the Guardian Council, a group of conservative clerics that oversee the Parliament. Once approved, the Central Bank of Iran has two years to make the switch, removing rial from circulation and issuing toman instead.
The Root Cause
This move follows a considerable decline in the currency’s value as a result of severe U.S sanctions. Since 1971, the currency has been devalued 3,500 times. It has been on a steady decline since the Iranian Revolution of 1979, which saw a religious government come into power. The proposal to remove four zeros has been on the table since 2008, but it gained traction after 2018 when the U.S withdrew from Iran’s 2015 nuclear deal, reimposed sanctions, and the rial lost over 60% of its value.
Chronology of US-Iran Relations
The relationship between the U.S and Iran has been fraught with tension over the years. Key historical events shaping the relations include the 1953 overthrow of Iranian Prime Minister, Mohammad Mossadeq; the Iranian Revolution of 1979; the U.S Embassy Hostage Crisis from 1979-81; and the imposition of nuclear sanctions between 2002-13.
Further Developments in US-Iran Relations
Recent years have seen a continuing escalation in tensions, notably with the U.S abandonment of the nuclear deal in May 2018, and the reinstatement of economic sanctions against Iran. In response, Iran initially demonstrated restraint, hoping to secure economic favor from the EU by adhering to the nuclear deal. However, this strategy did not yield results for Iran, leading to a counter-pressure campaign that included the shooting down of a U.S military drone over the Strait of Hormuz in June 2019, beginning a cycle of provocation and escalation between the two nations.
