LOP Zeros Article of Old

Rial may soon lose 3 or 4 of its zeros

The regime decided long ago to drop at least three zeros, thereby making 1,000 old rials worth one new rial.  One US dollar, which now costs about 10,500 rials, would then cost 10.5 rials.  But the government has constantly delayed the shift.  It seems to fear inflation.
On Saturday, Finance Minister Shamseddin Hossaini said the government was planning to carry out the long delayed dropping of three zeros during the current Persian year.  But then  he added:
“The only issue that makes the government hesitant in implementing this policy is that we need maximum price stability before removing the zeros to achieve a lasting result.”
Inflation has, however, been increasing in recent months from about 10 percent annually to around 15 percent annually, which would trigger Hossaini’s fears about a lack of price stability.
Three days later, Central Bank Governor Mahmud Bahmani ignored what the finance minister had said and instead announced that the Central Bank has begun making plans to remove four zeros from the rial.  He said the completed plan will be proposed to the cabinet within six months.  He said nothing abut any inflation fears.
The dropping of zeros is not a financial shift, just a cosmetic change.  Financially, it will have no impact on the value of the currency.  But Hossaini’s comments suggested he fears a negative psychological impact that might cause the public to flee the rial for foreign currencies, which would have a financial impact and drive down the value of the rial.
The two competing announcements hint at some friction over the issue.  The Central Bank is the agency in charge of the currency.  It issues notes, not the Finance Ministry.              

Bahmani says 4 zeros to go—but not soon

No explanation was given for the long delay or for the shift from lopping off three zeros to four.
The constantly shifting policies make the regime look disordered and inept, unable to make decisions or to stick with them once they are made.
On Sunday, Central Bank Governor Mahmud Bahmani said Iran plans to slash four zeros from its national currency in “one to two years,” seeking parity with the US dollar.
But five days earlier, Bahmani said four zeros would be sliced off under a plan to be presented to the cabinet “within the next six months.” Now six months has become 12 to 24 months.
And three days before Bahmani said four zeros would go, Finance Minister Shams-eddin Hossaini said three zeros would be lopped off.  And he said that would happen during the current Persian year.
In September 2009, Bah-mani announced that after long study the Central Bank had decided to recommend that three zeros be removed from the rial.  In January 2010, President Ahmadi-nejad announced his approval of the three-zero reduction.
Now Bahmani has suddenly added a zero.  While he gave no explanation for the change, he hinted that he was seeking parity with the dollar.
“The new rial … will be equal in value to one (US) dollar,” the state news agency quoted Bahmani as saying, adding that it would take “one to two years” to be implemented.
Bahmani did not indicate whether the authorities would try to maintain a fixed parity between the greenback and the Iranian currency following the zero reduction.
Bahmani failed to say why Iran would want the rial to have parity with a currency the Islamic Republic says is dying and is rapidly being rejected by the rest of the world.  Three years ago, Ahmadi-nejad ordered all government agencies to calculate foreign exchange requirements in terms of the euro.  But Ahmadi-nejad’s own budget continues to use dollar conversions and only a handful of government agencies state foreign exchange in terms of the euro.
Ahmadi-nejad once led a vocal campaign against the dollar, calling it a weak currency.  Perhaps not coincidentally, that was when the US Treasury had started its campaign to limit Iran’s ability to conduct transactions in the dollar.  Like many of Ahmadi-nejad’s vocal campaigns, his anti-dollar diatribes have long since faded and been replaced by other rhetorical frenzies.
The government has been talking about changing the national currency to get rid of the voluminous zeros ever since 2007 without ever actually doing anything about it.
The problem is that one rial will buy nothing.  One rial is currently worth a tad more than 1/100th of a US cent.  It takes 105 rials to make a single US penny.  
The rial has dropped drastically since the Islamic revolution, from 70 to the dollar in 1979, to around 10,500 today.
Bahmani said Sunday that the name of the new currency would not change, but presumably he could change his mind about that just as he changed his mind about the number of zeros to be lopped off.
Bahmani also said the new rial would be “introduced gradually so that people can get used to It.”  He didn’t explain what that meant.  Normally, countries introduce currency shifts over a period of a few weeks to a few months, with the new currency appearing in banks one day, shops told to change their posted rates some days later and the old currency declared invalid later on.
Bahmani said, “Some people think removing the zeros will weaken the national currency … but it will instead cut inflation. Removing four zeros will also facilitate trade.”  But lopping off zeros is purely cosmetic and has nothing at all to do with inflation.  The main benefit of such a change is convenience.  The public is no longer dealing with immense figures—millions, billions and trillions.  A $100,000 house in Tehran is worth 1 billion rials.
If the rial indeed is configured to be close to a dollar, Iran will likely resurrect the dinar.  The rial is officially divided into 100 dinars, but the dinar is now a relic recalled only by the very aged.  The dinar effectively died with the gross inflation of World War II.
The rial was introduced in 1798 by the new Qajar Dynasty.  In 1825, the Qajars changed the name to gheran.  In 1932, the Pahlavi Dynasty switched from the gheran back to the rial, with the rial worth about 10 US cents of the day and divided into 100 dinars.
The Pahlavi rial slipped in value from about 10 to the dollar in 1932 to 70 to the dollar by the late 1950s.  It then remained very stable—one of the world’s most stable currencies for two decades—until the 1979 revolution when it went into a sharp plunge.  The Central Bank’s posted price for the rial on Monday was 10,401 to the US dollar.
The term rial (in various spellings) is currently used for the currencies of Brazil, Cambodia, Saudi Arabia, Yemen, Oman and Qatar.
Many countries shift the name of their currency when they lop off zeros and present the new currency as the end of inflation.  Inflation, however, results from government policies, not the name of a currency.

Cabinet finally votes to lop four zeroes of rial

this week as the Central Bank governor said the plan would probably take until February 2015 to implement, two years longer than the governor said last year.

The idea of dropping excess zeroes has been bruited about for many years.  It moved front and center in the fall of 2009 when Central Bank Governor Mahmud Bahmani said a study had recommended slicing off three zeros.
That later changed to four zeros.  And on Sunday, the cabinet formally—and very belatedly—adopted the plan to carve away four zeros.
Bahmani then sowed confusion by saying it would take around three more years to bring about the change or until February 2015.
But in April of last year, Bahmani said it would take at least two years to knock off any zeros, or until April 2013.
Ten days prior to that, Bahmani said the shift would take “one to two years.”  And five days before that, he said he would present a full proposal for making the currency change to the cabinet “within the next six months.”
In other words, every time Bahmani talks about lopping off zeroes, the completion is extended still further out into the future.
Bahmani gave no explanation for the constantly changing timetable.
Bahmani did at least stick with the intention to drop four zeros from the rial, converting 10,000 rials into one rial.  He announced the four-zero drop in April of last year—changing from the three-zero drop he announced in September 2009 after what he described as a long study by the Central Bank.
The shifting of implementation deadlines and the number of zeros to be dropped telegraphs considerable confusion within the Central Bank on what is really a rather minor issue with no impact on monetary policy.  It begs the question of whether there is equal confusion on more important matters that could impact the economic health of the state.
At the official rate of exchange right now, one rial is  worth 8 thousandths of one US cent.   The difficulty of dealing with a currency where one unit is a measure of worthlessness rather than of value was demonstrated last week when President Ahmadi-nejad introduced to the Majlis his budget totaling 5,100,000,000,000,000 or 5.1 quadrillion rials.

Cabinet votes to whack four zeros off former rial

Central Bank Governor Mahmud Bahmani said the decision was made by the cabinet Sunday. He did not announce the new name of the currency, but said it would be published “soon” on the bank’s website.

Bahmani said it would take “at least three years” before the currency shift would take place. Back on April 20, Bahmani said it would take at least two years before Iran was ready to knock any zeros off its national currency. Ten days prior to that, Bahmani said the shift would take “one to two years.”

Bahmani gave no explanation for the constantly changing timetable.

He has, however, stuck with the intention to drop four zeros from the rial, converting 10,000 rials into one rial. He first announced the four-zero drop in April—changing from the three-zero drop that he announced in September 2009 after what he described as a long study by the Central Bank.

The shifting of implementation deadlines and the number of zeros to be dropped telegraphs considerable confusion within the Central Bank on what is really a rather minor policy issue with no impact on monetary policy. It begs the question of whether there is equal confusion on more important matters that could impact the economic health of the state.

Back in April, Bahmani said the shift from dropping three zeros to dropping four would give the rial parity with the US dollar. Right now, $1 equals about 10,500 rials. By shifting the decimal point four digits to the left, one dollar will cost 1.05 rials.

Bahmani failed to say why Iran would want the rial to have parity with a currency the Islamic Republic says is dying and is rapidly being rejected by the rest of the world. Three years ago, Ahmadi-nejad ordered all government agencies to calculate foreign exchange requirements in terms of the euro. But Ahmadi-nejad’s own budget continues to use dollar conversions and only a handful of government agencies state foreign exchange in terms of the euro.

Ahmadi-nejad started a vocal campaign against the dollar, calling it a weak currency. Perhaps not coincidentally, that was just after the US Treasury started its campaign to limit Iran’s ability to conduct transactions in the dollar.

The government has been talking about changing the national currency to get rid of the voluminous zeros ever since 2007 without ever actually doing anything about it.

The problem is that one rial will buy nothing. One rial is currently worth a tad more than 1/100th of a US cent. It takes 105 rials to make a single US penny.

The rial has dropped drastically since the Islamic revolution, from 70 to the dollar in 1979, to around 10,500 today.

Back in April, Bahmani said the name of the new currency would not change. He did not say Sunday why he had now changed his mind.

Bahmani said, “Some people think removing the zeros will weaken the national currency … but it will instead cut inflation. Removing four zeros will also facilitate trade.” But lopping off zeros is purely cosmetic and has nothing at all to do with inflation or the value of the currency. The main benefit of such a change is convenience. The public is no longer dealing with immense figures—millions, billions and trillions. A $100,000 house in Tehran is worth 1 billion rials.

If the rial indeed is configured to be close to a dollar, Iran will likely resurrect the dinar. The rial is officially divided into 100 dinars, but the dinar is now a relic recalled only by the very aged. The dinar effectively died with the gross inflation of World War II.

The rial was introduced in 1798 by the new Qajar Dynasty. In 1825, the Qajars changed the name to gheran. In 1932, the Pahlavi Dynasty switched from the gheran back to the rial, with the rial worth about 10 US cents of the day and divided into 100 dinars.

The Pahlavi rial slipped in value from about 10 to the dollar in 1932 to 70 to the dollar by the late 1950s. It then remained very stable—one of the world’s most stable currencies for two decades—until the 1979 revolution when it went into a sharp plunge.

The term rial (in various spellings) is currently used for the currencies of Brazil, Cambodia, Saudi Arabia, Yemen, Oman and Qatar.

Many countries shift the name of their currency when they lop off zeros and present the new currency as the end of inflation. Inflation, however, results from government policies, not the name of a currency.

Brazil, for example, used one new currency after another in the 1980s before creating the “real” in 1994 and simultaneously shifting its financial policies so as to end rampaging inflation.

Other terms that have been used for Iranian currencies over the centuries include the shahi, abbasi, naderi, dozari and toman. Most of those terms have monarchial connotations. Toman is in common usage, however, to mean 10 rials. It is the normal street term instead of rial. However, one toman is worth but 1/10th of a US cent.