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  Charting Rial’s Route to Retirement

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Ssmith
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PostSubject: Charting Rial’s Route to Retirement   Tue Dec 13, 2016 1:20 pm

Charting Rial’s Route to Retirement


Mohammad Affianian


Finance Desk


Tuesday, December 13, 2016

The ease that the advent of toman will bring to financial affairs and accounting procedures, however, should not blind the government to the many challenges that the plan entail




The news last week that Iran is switching its national currency to toman was more than just a big announcement; it also polarized opinion and exposed the apparent disharmony among policymaking bodies.

The decision to change the monetary unit from rial to toman and thereby remove one zero from the national currency was announced, as the Cabinet approved parts of the Central Bank of Iran Bill before sending it to the parliament.

Ironically, this is the same bill that the CBI had earlier published on its website, asking the public to comment on measures meant to empower the otherwise rubberstamp body. But as everyone could see at the time, no article addressed currency revaluation.

In fact, the bill specifically described Iran’s currency as rial, deeming it to be equivalent to 100 dinars. However, what happened between the drafting of the bill and its journey to President Hassan Rouhani’s desk is anyone’s guess.

Nevertheless, one thing is for certain and that is the unexpectancy of the announcement that caught many by surprise.   

In trying to dispel the ensuing obfuscation, Seif took to the messaging app Telegram–a medium popular with Iranians–announcing in his official channel that the removal of one zero from the rial was not a “revaluation” or “redenomination” in the true sense of the word.

What Seif and his first deputy made clear in the coming days was that the currency switch was just a gesture made in solidarity with the prevalent “norms of the society” and a respect for how the average people calculated their daily transactions.

Indeed, the rial had for long become a relic of the past. Growing inflation over the decades had rendered the rial all but obsolete among ordinary citizens, but its continued use by the government and state bodies had driven a financial wedge between the government and the people. Therefore, as far as “respect” for public opinion is concerned, the decision is well-grounded.

  Not-So-Primrose Path

The ease and convenience that the advent of toman will bring to financial affairs and accounting procedures, however, should not blind the government to the many challenges that the plan entail.

First and foremost is the timing of the initiative. Although the government has made many achievements worthy of commendation, analysts warn that the economy is still far from stable.

Achieving a single-digit inflation after nearly three decades, helping remove the nuclear sanctions, forging a relative recovery in oil price and ditching the populist policies of the previous administration allowing for binge borrowing from the central bank, praiseworthy as they are, do not necessarily warrant a full-blown currency revaluation.

The experience of countries that have trodden the same path shows that success comes only when a country has it all together, otherwise it would be at best an exercise in futility.

While the government mulls such a measure, it should bear in mind that the country’s ailing banking system is yet to heal and the economy as a whole still suffers from a lack of transparency. Youth unemployment remains alarmingly high and GDP growth is hardly satisfactory. Removing one or more zeros will do nothing to remedy these problems.

If the government is determined to go ahead with a currency revaluation, it should be mindful of the cumbersome cost it will impose. According to one estimate, upending the current monetary regime, including introducing new banknotes and phasing out the old ones, would cost around 520 trillion rials ($16.1 billion).

The CBI governor has responded by saying that a return to toman–the unit was the official currency until 1930s–would mean that the existing bills will be used “until the last moment”. But since new banknotes would have to be printed anyway, why not take the bull by its horns and initiate a proper currency revaluation by removing as many zeros as possible once and for all?

While the debate is raging and the fate of the rial hangs in the balance, experts are hoping that the bill will gain in strength in the parliament when lawmakers are expected to debate it in the coming weeks. However ailing the rial might be at the moment, a premature death bodes ill for any currency that overtakes it.

https://financialtribune.com/articles/economy-business-and-markets/55373/charting-rial-s-route-to-retirement
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PostSubject: Re: Charting Rial’s Route to Retirement   Wed Dec 14, 2016 12:34 am

But, but, but ... the pooroos said the Rial was the next big win ....

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