Iran Cuts Three Zeros from the RialWritten by Adam Gonn
Published Thursday, September 17, 2009n order to fight a double-digit inflation Iran has decided to cut three zeros off the rial.
A plan by the Iranian Central Bank to contract the nominal size of the currency has been approved by parliament.
The Governor of the Iranian Central Bank Mahmoud
Bahmani announced that a group working on fighting the double digit
inflation has decided to cut three zeros from the national currency,
the rial.From an economic perspective, the important thing is to cut the inflation rate from a 20% annual increase to a reasonable rate" Emad Honarparvar, an Iranian businessman, told The Media Line.
Bahmani declined to give a date when the plan would
be implemented, but noted that the country’s economists had studied it
and that these experts, as well as his predecessors at the Bank, had
agreed to diminish the size of the national currency.
"For the last 80 years, Iranians have been using an
unofficial currency called toman instead of rial, which is 10 times
bigger than the rial," Honarparvar said.
"Beside this, price increases from decades of
inflation, especially during the Iran – Iraq war, have led to most
prices being marked in toman," he said
"When someone says 10 toman, it’s possible he means
100,000 rials. So the new currency can make confusions and
complexities. Maybe it would have been more practical to cut four
zeros," he said.
The inflation rate in September was reported to be 20.2% down from nearly 29% in September 2008.
Some observers say that Iranian President Mahmoud
Ahmadinejad’s expensive economic policy during his previous term in
office is behind the current crisis. The policy included lowering
interest rates on loans to encourage more circulation of cash in the
market, as well as huge spending on public infrastructure projects.
The Iranian economy revolves around the oil and gas
sector which is the nation’s prime source of income but also one of its
largest expenses. While Iran has some of the world’s largest oil and
gas reserves in the world, there is a severe lack of refining
capabilities.
Oil is therefore exported to other countries in the
Gulf for refinement before being re-imported, in addition to the
expense, the process also makes Iran dependent on foreign countries.
According to some estimations, due to the high
market price, refined oil is heavily subsidized at the annual cost of
some $50 billion, once back in Iran.
Other factors that are suspected of pushing up
inflation include; increasing salaries for government employees; a
rigid economic structure controlled heavily by government; and a
private sector limited to small scale workshops, farming and services.
The United States is considering targeting Iran’s
dependence on foreign refinement, as possible sanctions against Iran’s
disputed nuclear program.
While Iran argues the program is strictly for energy
production, the U.S. suspects Iran of developing nuclear weapons. The
U.S. imposed economic sanctions against Iran during the Islamic
revolution in 1979 but lately there have been suggestions President
Obama might be considering increasing sanctions if Iran does not abort
its nuclear program
http://www.themedialine.org/news/news_detail.asp?NewsID=26515
Published Thursday, September 17, 2009n order to fight a double-digit inflation Iran has decided to cut three zeros off the rial.
A plan by the Iranian Central Bank to contract the nominal size of the currency has been approved by parliament.
The Governor of the Iranian Central Bank Mahmoud
Bahmani announced that a group working on fighting the double digit
inflation has decided to cut three zeros from the national currency,
the rial.From an economic perspective, the important thing is to cut the inflation rate from a 20% annual increase to a reasonable rate" Emad Honarparvar, an Iranian businessman, told The Media Line.
Bahmani declined to give a date when the plan would
be implemented, but noted that the country’s economists had studied it
and that these experts, as well as his predecessors at the Bank, had
agreed to diminish the size of the national currency.
"For the last 80 years, Iranians have been using an
unofficial currency called toman instead of rial, which is 10 times
bigger than the rial," Honarparvar said.
"Beside this, price increases from decades of
inflation, especially during the Iran – Iraq war, have led to most
prices being marked in toman," he said
"When someone says 10 toman, it’s possible he means
100,000 rials. So the new currency can make confusions and
complexities. Maybe it would have been more practical to cut four
zeros," he said.
The inflation rate in September was reported to be 20.2% down from nearly 29% in September 2008.
Some observers say that Iranian President Mahmoud
Ahmadinejad’s expensive economic policy during his previous term in
office is behind the current crisis. The policy included lowering
interest rates on loans to encourage more circulation of cash in the
market, as well as huge spending on public infrastructure projects.
The Iranian economy revolves around the oil and gas
sector which is the nation’s prime source of income but also one of its
largest expenses. While Iran has some of the world’s largest oil and
gas reserves in the world, there is a severe lack of refining
capabilities.
Oil is therefore exported to other countries in the
Gulf for refinement before being re-imported, in addition to the
expense, the process also makes Iran dependent on foreign countries.
According to some estimations, due to the high
market price, refined oil is heavily subsidized at the annual cost of
some $50 billion, once back in Iran.
Other factors that are suspected of pushing up
inflation include; increasing salaries for government employees; a
rigid economic structure controlled heavily by government; and a
private sector limited to small scale workshops, farming and services.
The United States is considering targeting Iran’s
dependence on foreign refinement, as possible sanctions against Iran’s
disputed nuclear program.
While Iran argues the program is strictly for energy
production, the U.S. suspects Iran of developing nuclear weapons. The
U.S. imposed economic sanctions against Iran during the Islamic
revolution in 1979 but lately there have been suggestions President
Obama might be considering increasing sanctions if Iran does not abort
its nuclear program
http://www.themedialine.org/news/news_detail.asp?NewsID=26515