Iran wants to introduce a new currency to stop inflation

RTLZ
Erasmus School of Economics

The Iranian currency, the rial, has decreased approximately 60% in value since 2015. In an attempt to stop the ongoing inflation, the government wants to introduce a new currency. Ivo Arnold, Professor of Monetary Economics at Erasmus School of Economics, explains why this new currency will not solve Iran’s problems.

Symptom control

The new currency, the toman, would have to cause the current currency to lose as many as four zeros. This means that ten thousand rial would be equal to one toman. The Iranian parliament has already approved the proposal. All that is left now is for the Shiite clergy to approve the new plan. Ivo Arnold refers to Iran's plan as a plan of merely symptom control. ‘That will not help the country. Currency reform could help, but only when the country can also get its finances in order.'

Venezuela

Two years ago, a similar situation occurred in Venezuela. The Venezuelan President Nicolas Maduro wanted to get rid of five zeros of the countries’ currency, the bolivar. Even at that time, Ivo Arnold indicated that just removing some zeros from the exchange rate was not going to save the country.

Professor
More information

The full article from RTLZ, 4 May 2020, can be found here (in Dutch).