Removing the four zeros from Iran's national currency has become more serious than ever

The Central Bank has submitted a bill to the government to remove four zeros from the national currency and hopes that this will be completed “as soon as possible.” Given the powers that the heads of the three branches of government have given to the Central Bank Governor, this action could be taken soon.

The discussion about reforming Iran's national currency and removing a few zeros is not new; this discussion began at least in the late 1980s with the collapse of the rial's value, and in the early 1990s, the Central Bank even launched a website to survey the public about this issue and the name of the new currency.

The new round of these discussions, especially with Abdolnaser Hemmati assuming the position of Governor of the Central Bank, seems more serious than ever, and there is evidence that the implementation of the national currency reform plan could occur in the near future.

According to the Central Bank's Public Relations Department, Hemmati announced on Sunday morning, January 6, in a meeting with members of the provincial parliamentary faction: "The bill to remove four zeros from the national currency was submitted to the government by the Central Bank yesterday, and I hope this matter will be resolved as soon as possible."

Hemmati succeeded Valiollah Seif on August 26 of this year, while severe currency market turbulence and the free fall in the value of the national currency continued, and the United States, by announcing its withdrawal from the nuclear agreement with Iran and the Joint Comprehensive Plan of Action (JCPOA), had announced its plans to reimpose suspended or suspended sanctions.

Captain of the "Storm-Stricken Ship"

At that time, many experts, including Mohammad Reza Sabzalipour, an economist and head of the Iran World Trade Center, believed that Hemmati had taken a huge risk, taking "the helm of this storm-stricken ship" in a critical situation at the height of economic problems and severe monetary and currency instability.

The currency market crisis and the collapse of the rial's value had become so serious that the heads of the three branches of government formed a Supreme Economic Coordination Council in early October, approving the reform proposals of the new Central Bank governor and giving him broad authority to organize the currency market.

The Central Bank's measures in recent months and the full support of the government, parliament, and judiciary for Hemmati and his colleagues have, at least so far, controlled the rapid increase in the price of the dollar and other reputable foreign currencies in the free market and have put prices on a downward slope.

These relative successes and the support of the heads of the three branches of government indicate that the Central Bank's proposed bill to remove four zeros from the national currency is most likely an issue that has already been agreed upon in the Supreme Economic Coordination Council and that its implementation is more likely than before.

Another sign that strengthens the possibility of implementing the removal of the four zeros in the national currency is the Central Bank's new 500,000-rial Iranchek, which was unveiled a few days ago (January 11).

Four-zero absence from the new Iranchek

Hemmati expressed hope on Monday at the unveiling ceremony of this Irancheq, which was held at the Banknotes and Coins Organization with the presence of Farhad Dejpasand, Minister of Economy and Finance, that with the growth of production and economic development and the efforts of the Central Bank in managing the foreign exchange market, "we will witness further strengthening of the value of the national currency."

According to the Central Bank's public relations report, Dejpasand also said at the ceremony: "Today, a document was unveiled that expresses hope for Iran's future by relying on the country's assets, and this shows the Central Bank's determination to help the Iranian economy in a position commensurate with the values ​​of this country."

One thing that attracts more attention in the new Iranchek design than the old ones is the emphasis on the number 50 and the fading of the four zeros after it. In its explanation of this Iranchek, the Central Bank mentioned the number 50 in three instances, including writing: “The number 50 is printed with invisible ink that appears under ultraviolet light with complementary red and blue colors.”

The seriousness of the Central Bank's plan to eliminate four zeros is more clearly stated in the seventh explanation, which relates to the "supplementary design": "This design is printed in the form of a picture and a value number in such a way that part of the design is on the front and another part is on the back of the Iranchek, and they complement each other when exposed to light." This "value number" is 50. Accordingly, the Iranian currency will be converted from rial to toman, and 500,000 rials will become 50 tomans.

A plan to equalize the dollar and the toman?

The price of one US dollar in the Iranian free market, which had reached 18,000 tomans a few months ago, will fall to around 10,000 tomans with the recent policies of the Central Bank. If the plan to remove four zeros is implemented when the dollar reaches 10,000 tomans, each US dollar will be equal to one Iranian toman.

In December 2016, the cabinet announced that it had approved a bill proposed by the Central Bank to change Iran's currency to the toman, equal to 10 rials. The bill was then shelved and was not sent to the parliament for consideration.

Valiullah Seif, the then governor of the Central Bank, said: “The conclusions were that an independent proposal from the government and the Central Bank would be sent to the parliament, which, if approved, would lead to the removal of four zeros from the national currency.” He added that the government had currently given up on pursuing this plan and had postponed it to “the next year or two.”

Prerequisites for removing zeros

Seif had stated that one of the prerequisites for eliminating zeros was “the continuation and stability of single-digit inflation.” With the collapse of the national currency and the jump in the exchange rate, inflation has intensified, and in recent months, inflation has again reached double digits.

In a meeting with representatives of the provincial parliamentary faction, the Governor of the Central Bank expressed hope that the inflation rate would be better controlled than before, referring to the decrease in the growth rate of goods and services in November and December and the decline in the exchange rate. Apparently, this hope was one of the reasons for submitting the proposed bill to the cabinet to eliminate zeros.

Although evidence suggests that the central bank's monetary reform program is serious, its implementation first requires approval by the cabinet. Then, the government bill is submitted to the parliament, and if a majority of representatives vote in favor of it, it will become law.

Removing zeros from a national currency has many supporters and opponents, but it is not an unprecedented endeavor. Germany was one of the pioneers in this endeavor after World War II to strengthen the value of its national currency and confront rising inflation. Since then, dozens of other countries have tried this path, and many of them, including Turkey, have been successful in this regard.

Pros and cons of removing zeros

Supporters say that since 1308 AH, when the rial replaced the toman, and especially in the last half century, people have never abandoned the toman and have not accepted the rial as a real unit of currency. With this in mind, converting the currency to the toman can be easily accepted.

It is also said that removing the zero will reduce inflation, reduce the exorbitant cost of printing banknotes, and facilitate cash transactions. For many years now, people have been removing the four zeros in their verbal exchanges in the market and calling the currency unit toman; they call ten thousand rials or one thousand tomans one toman.

Accordingly, removing the four zeros means adapting the national currency to a current and accepted reality. Moreover, today, in larger transactions, ten million rials or one million tomans are also called one toman.

Saving time and auditing and accounting costs are other reasons for those in favor of eliminating the four zeros, which most opponents also accept. Reducing cash in circulation, which could lead to reduced liquidity and inflation, is another argument for those in favor.

Another of the most important reasons for those in favor of removing the four zeros is the psychological aspect and the increase in public confidence in the national currency, especially in comparison to reputable foreign currencies. And this is where one of the main arguments of the opponents comes into play; namely, that all the benefits listed for removing the zeros will only become a reality when monetary reform is part of a set of measures and policies that bring economic prosperity, reduced inflation, and increased employment.

Opponents say that it is true that the number of banknotes in circulation in a country like Iran is currently more than ten times that of advanced countries and that the cost of printing them is staggering, but changing the currency is also not cheap due to the printing of new banknotes and minting of coins.

The possible increase in prices and inflation and the decrease in export revenues if the national currency strengthens are other reasons that some opponents of removing the four zeros point to.

The uncertain future of the rial and toman

Overall, there is perhaps one point that many agree on; removing the zero and changing the national currency, if not accompanied by extensive economic, political, and social reform policies, will not necessarily lead to positive results and may even have a negative impact on the economy and the situation of the people.

While the government and the Central Bank's determination to remove four zeros and convert the rial to the toman seems more serious than ever, without curbing inflation and improving economic conditions, the prospects for this decision to be effective are unclear.

The Majlis Research Center recently estimated that if the economic recession remains the same and oil exports fall to less than one million barrels per day due to the pressure of sanctions, Iran's economic growth could drop to minus 5.5 percent in 2019.

For this reason, despite the Central Bank's submission of a bill to the cabinet to remove four zeros and highlight 50 instead of 500,000 rials on the new Irancheq, the government's seriousness in replacing the rial with the toman will only be clear when the bill is sent to parliament.

Source: DW