Can Iran save its rial?

Curious news has just emerged out of Tehran: the country’s quasi-parliament is reviving a long-discussed idea to delete four zeros from Iran’s currency (the rial). 

Once approved, that means 10,000 old rials (24¢) will be replaced by one crisp new rial.

Why bother?

It's no secret Iran’s economy is a mess — despite having the world’s largest combined oil and gas reserves (or separately #2 in gas and #3 in oil), plus a population comparable to Germany’s, its $400B GDP sits somewhere between Bangladesh and Nigeria.

And for Iran, that looks like 39% inflation, power outages, and empty shelves (particularly for medicine and tech). Now to be clear, the country pumps out quality engineers, doctors, scientists, and entrepreneurs: its Uber-equivalent (Snapp!) reportedly handles more daily trips in Tehran than Uber does anywhere on earth!

But the growth just isn’t there. Iran’s ruling mullahs blame sanctions from the West, which in turn blames the republic’s own record of repression at home and aggression abroad.

The theocracy’s own economic model is also a driver: the powerful Islamic Revolutionary Guard Corps (IRGC), which reports directly to the supreme leader, now controls 20-40% of Iran’s economy, including across construction, energy, telecommunications, and finance.

That not only encourages corruption, but discourages competition: who’s going to try competing with one of the country’s most feared institutions? It also stabilises the regime: those revolutionary defenders have a juicy stake in its survival.

Anyway, will this redenomination plan (aka moving the decimal point four places) change anything? In a practical, transactional sense, sure: daily life gets a little easier when your grocery bill or P&L isn’t just a sea of zeros.

And in a behavioural economics sense? Maybe: some research suggests a loaf of bread costing ‘2 new rials’ feels cheaper than ‘20,000 rials’, boosting consumer confidence even though their actual purchasing power remains unchanged.

Iran isn’t exactly alone, either:

• 🇹🇷 Turkey ditched six zeros when working with the IMF to stabilise inflation

• 🇿🇼 Zimbabwe’s culls failed to stop hyperinflation (fuelled by money printing), and

• Even 🇰🇵 North Korea once tried it back in 2009, wiping out household savings and triggering rare public unrest (the country’s top finance official got executed). 

But… intrepid Intriguers will recall there are many countries out there — whether South Korea, Indonesia, or Norway — where a carton of milk costs 32,000 or whatever, and yet the economy is fine and governments aren’t out there slashing zeros. Even the UK has had its own bouts of inflation, but it never resorted to renaming James Bond '7'.

Rather, those leaning on redenomination are often in broader distress. 

So will this work for Iran?

A similar measure once worked for arch rival Israel back in the 1980s, helping stabilise the macro conditions for growth. Ditto for Turkey, which enjoyed a solid monetary decade until Erdogan really started meddling (his lira just hit a new low against the dollar).

The lesson from history seems to be that, while redenomination won’t fix fundamentals, it can send a signal to citizens, markets, and investors that the government is serious — but only if paired with credible policies that tackle the systemic issues.