Approval of Removing Four Zeros from National Currency; One Thousand Tomans Today Will Become One Toman

The Iranian government approved the general provisions of a bill to remove four zeros from the national currency. This plan defines the basic unit of Iran’s currency as the “toman.” According to this bill, the current 10,000 rials equals one “new toman.” One new toman will also be equivalent to 100 rials.

Finally, after a long period of ambiguity regarding reforms in Iran’s basic monetary unit, on Wednesday, the 9th of Mordad (July 31), Ali Rabiei, the government spokesman, announced the approval of the general provisions of the bill to remove four zeros from the national currency by the twelfth government.

According to the government resolution, Iran’s basic monetary unit will change from rial to toman, and one new toman will be equivalent to 100 rials.

Based on this bill, four zeros from the rial and three zeros from the toman have been removed, and accordingly, after the bill is approved by parliament, the current 10,000 rials will become one new toman.

The bill approved by the government must also be approved by the Islamic Consultative Assembly to be finalized and then placed on the agenda. The government spokesman said: “We will try to send the bill to parliament with two urgent priorities.”

According to ISNA, Ali Rabiei, stating that “implementing the plan to remove four zeros from the national currency will increase the efficiency of the national currency and create greater harmony with current social norms,” emphasized: “Removing four zeros from the national currency will ensure that the external dignity of the national currency is respected in comparison with other international currencies, and coins, which have been absent for some time, will re-enter circulation. Additionally, paper consumption will also decrease.”

The government spokesman also rejected the connection between removing four zeros from the national currency and “inflation and purchasing power,” saying: “By implementing this plan, we are solely seeking to increase the efficiency of the national currency.”

Long History of the Plan

The discussion of removing zeros from Iran’s national currency dates back to the 1980s and during the presidency of Mahmoud Ahmadinejad, and was mentioned as a solution to combat rising inflation. However, these discussions remained fruitless due to foreign exchange crises and the implementation of the subsidy targeting law, which itself intensified inflation.

The plan was raised several times during Hassan Rouhani’s government, but Valiollah Seif, the former governor of the Central Bank of Iran, while confirming it, made the implementation of such a plan conditional upon the availability of conditions including “economic stability and sustained single-digit inflation.”

However, with Abdolnasser Hemmati assuming the leadership of the Central Bank, the discussion of “reforming the monetary system, defining a new monetary unit, and reviewing banknote and coin circulation” was placed more seriously on the agenda until it finally led to the approval of the general provisions of the bill proposed by the Central Bank for removing four zeros from the national currency in the twelfth government.

Now, the details of this plan are to be reviewed and approved by the government. After that, if the bill is confirmed and approved by the Islamic Consultative Assembly, it will be implemented.

Based on the plan proposed by the Central Bank, which was approved by the government today, the basic unit of Iran’s national currency will no longer be the rial, but will change to the “toman.” Each “new toman” will also be equivalent to 10,000 current rials and 100 “new rials.”

A Two-Year Process

The Governor of the Central Bank of Iran had previously said about the time needed to implement this plan: “It is a time-consuming process in terms of legal and technical aspects, and based on our experts’ estimates, its implementation will take nearly two years.”

Abdolnasser Hemmati also said about the process of introducing new banknotes and removing old ones: “After becoming law, new money will gradually enter circulation by replacing old, worn banknotes, and the cost will not be comparable to the cost of printing large volumes of current banknotes.”

The head of Iran’s Money and Credit Council, while emphasizing the impact of removing zeros on “enhancing the prestige” of Iran’s national currency on the international stage, considered it a measure that “in many countries, alongside other measures, is the beginning of serious economic reforms.”

According to Tasnim News Agency: “By implementing the plan to remove 4 zeros from the national currency, while facilitating and restoring the role of cash payment instruments in domestic monetary transactions and reducing the costs of printing and minting banknotes and coins, the efficiency of the new monetary system will continue in coming years, and the exchange rate parity of the national currency with world currencies in the short term will have positive psychological effects.”

The Central Bank has proposed the length of the “transition period” from rial to toman as 24 months, during which old banknotes and coins are to be collected and replaced.

The issue of reforming Iran’s monetary system is not new. Severe inflation and the decline in the value of the national currency had long made the reform of Iran’s monetary system necessary.

The most important reason for the necessity of reforming Iran’s monetary system is cited as the decrease in the value of Iran’s monetary unit compared to the currency of other countries as well as inflation. For example, the consumer price index in Iran from 1971 to 2018 had an increase of more than 2,700 times.

This is while according to IRNA news agency in late Farvardin of last year, “the largest banknote denomination, including the Central Bank’s Iran Check in this period, has not been adjusted proportional to the inflation rate and has only increased 50 times (from 10,000 to 500,000 rials).”

The existence of chronic inflation and the decline in the purchasing power of Iran’s monetary unit is mentioned as one of the other reasons necessitating the implementation of Iran’s monetary system reform.

Iranian officials cite the following as some of the positive consequences of removing four zeros from the national currency and changing its basic unit from rial to toman: increasing the prestige of the national currency, reducing the volume of banknotes in circulation, facilitating simple everyday monetary exchanges, removing current calculation difficulties, restoring coins to the cycle of economic transactions, using the official name of the country’s monetary unit, reducing printing and destroying costs of banknotes, and reducing costs arising from the high depreciation of ATMs and money counters.

Source: DW