Taking Out Three Zeros from Rial

According to Fars News Agency President Ahmadinejad has ordered Iran Central Bank to investigate the methods to take out Three zeros from Iranian Rials notes that are circulating in the country.

Mr. Mesbahi-Moghadam a Member of Parliament and an observer in Iran’s Council for Monetary and Banking Affairs, that was dissolved a few months ago, told reporters that a large number in Iranian currency is equal to small change in the strong currencies. In his opinion this necessitates a currency reform. He told reports that when in 1972 the first 10’000 Rials note was introduced two 10’000 Rials notes would have been a month pay. Wages have increased exponentially since then as well as prices. The purchasing power of 10’000 Rials in 1972 is equivalent to that of 1’280’000 Rials in 2007.

He mentioned that per capita there are 110 notes in Iran while the average is 10 to 12 pieces for European countries. He told the reporters that a monetary reform is necessary and President has ordered Central Bank of Iran to investigate the effects of taking out 3 zeros as well as the inflationary consequences of cash checks that are in circulation in Iran.

Meanwhile Iranian economists considered this move as irrelevant to inflation. Dr. Tabibian, a veteran economist of Management and Planning Organization, told Aftab that such a policy would not bear any economic fruit for the country in the absence of inflation control policies. Iranian bankers are more optimistic and suggest adjusting the currency will create some sort of stability.

In the meantime prices continue to increase. And Central Bank reports an increased inflation rate. Inflation is not limited to Iran in the region. The phenomenon is visible in other OPEC countries. Currently UAE is experiencing a 19 years peak inflation rate. However the absence of a monetary market and an investment market in Iran reduces government abilities to combat inflation through interest rate.

That’s a pity. Because if Iranian politicians know anything about economics, that is the political consequences of a high inflation rate and a frustrated public who are struggling with declining shopping power. Anyone who desires another term in the office has to do something about inflation.