The Majlis Research Center has called on the government postpone its rial redenomination agenda until after the economy has undergone fundamental structural reforms.
As per the ‘Reforming Monetary and Banking Law’ four zeroes will be shaved off from the national currency and the legal tender will be changed from the rial to the commonly used ‘toman’.
In a review of the anticipated change, published on its website, the parliamentary research center said removing zeroes "must be the last stage of a series of measures to reform monetary and economic structures."
The influential think tank cited examples of countries that successfully changed their national currency after making deep structural reforms,, namely controlling inflation.
"Lopping off zeroes has no impact on fundamentals of the economy, such as inflation, economic growth and improving the value of the national currency," the MRC stressed.
It described the plan as "insignificant and of low priority" that apparently is not an "immediate need of the country" and implementing it would demand a lot of energy and funds.
Galloping inflation is one of the key economic variables, which if not harnessed will render the whole plan futile, it claimed.
According to data released by the Statistical Center of Iran, the average goods and services Consumer Price Index in the 12-month period ending Nov. 20 shot up 29% compared to the corresponding period last year.
Consumer inflation for the month under review (Oct. 22-Nov. 20) was up 46.4% compared to the similar month last year.
In light of high and rising inflation and serious concerns about economic instability, many fear that the potential confusion that follows by removing zeroes will further push up prices.
The urgency of such a colossal plan is unpalatable when the government is struggling to meet its basic spending needs and is saddled with budget deficits unheard of in recent memory. Redenomination in and of itself means unwanted costs as it will require printing billions of new banknotes and designing software.
Government Stance
Amid all the concerns, the government has its own reasons for pushing the redenomination. Backing the plan, the Central Bank of Iran refers to the enormous amount of money in circulation due to the tanking of the rial. It argues that getting rid of zeroes will cut costs of printing banknotes. Few monetary experts and economy instructors buy the argument and insist that first the intolerable inflation rates should be controlled.
The CBI governor Abdolnasser Hemmati earlier said eight billion banknotes are in circulation, 5 billion of which are below 20,000 rials.
“By changing the monetary unit we can mint coins worth 2 tomans, which in fact equals the current 20,000-rial banknote,” the top banker said. He recalled that the government spends 4 trillion rials ($17 million) to destroy mutilated banknotes and print new ones.
To cut expenses pertaining to printing new money, MRC suggested printing banknotes with higher denomination. It also recommended the CBI to promote electronic retail payments. Government officials say redenomination may partially revive the devalued national currency. Currently one Iranian rial is barely worth 0.000003 dollar.
Amid voices for and against, the law to shave off four zeros from the rial was passed by the parliament in May.
Provisions of the law stipulate a maximum two-year “transitional period” during which both the toman and rial will be valid as legal tender.
After the transitional phase “[financial] obligations that were previously settled in rials will be settled only in toman”. The Central Bank of Iran is obliged to prepare the groundwork for implementing the new law.
