From the riyal to the tuman … Why did Iran change its currency and what is the meaning of deleting zeros from it?

From the riyal to the tuman … Why did Iran change its currency and what is the meaning of deleting zeros from it?

Posted, 8-1-2019

From the riyal to the tuman ... Why did Iran change its currency and what is the meaning of deleting zeros from itIn a new measure to ease economic burdens, Iran decided on Wednesday to delete 4 zeros from its national currency, “Riyal,” and changed its name to “Tuman.

This action leads, according to Tehran, to maintain the effectiveness of the national currency and reduce the cost of printing banknotes and reduce the problem of large numbers in the daily exchange, the burden of counting currency and cash coins and carry large amounts of them.

The Iranian government will send the draft resolution to Parliament for approval, with every 10,000 riyals being a single tumana. Governments delete zeros when their currency loses purchasing power, which is a substitute for the issuance of large categories of currency.

While experts stressed the effectiveness of this step in improving the deteriorating economic situation of the countries, they pointed out that there is a serious risk if not accompanied by a planned economic plan.
Iranian decision

The Iranian government approved on Wednesday a proposal to delete 4 zeros from the national currency and change the name to “Toman”, according to the agency “Fars” news.

The agency said that this proposal aims to “to maintain the effectiveness of the national currency and facilitate and modernize tools of cash payments in local transactions, as well as reduce the cost of printing banknotes and reduce the problem of large numbers in daily exchange, and the burden of counting currency and cash coins and carry large amounts of them.”

The news agency “Mehr” Iranian news agency that Abdel Nasser Hamti, head of the Central Bank, will provide more information on the decision later.

Iran’s central bank has been seeking to withdraw four zeros from the national currency in an effort to curb the flow of increased liquidity and help the riyal regain part of its lost value due to US sanctions and inflation due to the economic crisis.

The deletion of the zeros is more than the size of the largest category without the need to issue any new categories. Thus, the state provides the printing and packaging costs for these new categories, which are estimated at millions of dollars. For example, Of the currency becomes the current 1000 riyals equal to the value of this new paper.

What does this step mean?

Dr. Imad Akoush, a Lebanese financial and economic expert who is interested in the Iranian issue, said: “There are two ways to modify the currency, either to write off zeros or change the currency, and often the countries that change the currency are accompanied by the write-off of zeros.”

He added in a press statement that

“Iran’s elimination of zeros is not a new experience. There are many countries that have done so, including Turkey in 2005 that has written off 6 zeros, Algeria in 2016 and Venezuela, even Iran itself made a similar move in 2017.”

The economic expert stressed that “the main objective of the deletion of zeros facing the large inflation facing the currency, and is punctuated by many secondary objectives, the most important facilitate sales and purchase, especially with regard to writing prices on products in the markets.”

“The move is aimed at easing the burden of carrying large amounts of money, as the dollar in Iranian currency 42 thousand, prompting people to carry large amounts of money to spend their daily needs, and reduce the operations and costs of printing all this amount of currency.”

Economic advantages

At the level of citizens, Akkous stressed that “the move to write off zeros give a psychological boost to citizens, where he feels the value of his currency against other currencies.”

He pointed out that

“The deletion of zeros is to exchange the currency with a new one, which provides an opportunity to eliminate the hoarding of funds, whether in homes or by the gangs of Mafia, or speculators market, in addition to the elimination of counterfeiting currency, countries whose currency was subjected to large fraud, “He said.

On the impact of this step internationally, the economist said, “The deletion of zeros make the currency strong when compared to other currencies, and facilitate access to international credit, and become strong towards the international community, and increase access to credit and facilities and international loans.

Risks of change

“There could be a lot of economic damage if the change process is not accompanied by a strong and clear economic plan,” he said.

“It is assumed that any country resorting to change its currency would be based on an economic plan, as Turkey did in 2005, when it deleted 6 zeros, there was a clear plan, and an improvement in the economic situation.”

“Without this plan, there will be a negative reaction to the new currency, which will cause it to lose its value again,” he said.

Economic sanctions

“The official currency in Iran is the riyal, but it is not being dealt with, it is in Saudi Arabia, which is equal to 100 riyals,” said Mohammad Mohsen Abu Alnour, president of the Arab Forum for Iranian Policy Analysis (AFIP).
He added in a press statement that “the Iranian currency is very degraded, and the official price of the exchange of the dollar and the limit of 42 thousand riyals is unrealistic, where the exchange rate on the black market to 140 thousand riyals, equivalent to 14 thousand Toman.”

“Iran has approved the deletion of 4 zeros because it knows that, and it wants to limit the spending on printing securities, the new currency will provide a lot of printing.”

“Any change in the currency means the abolition of the old currency and the search for the new currency, and the countries that do so see it as a great improvement in the economy, as happened with Turkey,” he said.

“With regard to Iran, these actions will not bear economic fruit, because of the sanctions and successive economic crises,” he concluded.

“The deletion of four zeros from the country’s national currency has been approved and the national currency will be changed from the riyal to the tuman, because the toman is the most popular in the internal exchanges,” the head of the office of the Iranian presidency, Mahmoud Wazee, said in a statement.

“The president of the Central Bank will provide more information on the subject next Sunday,” he said.

It should be noted that the official price of the US dollar is 42000 Iranian riyals.

Iran’s crude oil exports fell to around 100,000 bpd in July due to sanctions and rising tensions with the United States and Britain, a source in the oil sector and tanker data told Reuters, deepening global supply losses.

The United States re-imposed sanctions on Iran in November after it withdrew from the nuclear 2015 agreement between Tehran and the six world powers.

In order to reduce Iran’s oil sales to zero, Washington ended in May exemptions from the sanctions it had given to importers of Iranian crude.