Janice R. Andrews
Iran’s ongoing battle with inflation and economic instability has taken a new turn as the government revives plans to replace the rial with the toman, removing four zeros from the currency. The move, initially proposed in 2016 and launched in 2021, aims to simplify transactions and mask the psychological impact of hyperinflation. However, with the plan stalled under the late President Ebrahim Raisi, his successor, Masoud Pezeshkian, has reignited the initiative. But can this currency reform truly curb inflation, or is it merely a superficial fix to a deeper economic crisis?
The Toman vs. Rial Dilemma: A Confusing Transition
For ordinary Iranians, the transition from the rial to the toman is more than just a change in currency—it’s a source of confusion. A loaf of bread in Tehran, for instance, costs 100,000 rials. Under the proposed reform, this would become 10 tomans. However, due to the informal use of the toman in daily transactions, where 1 toman equals 10 rials, the same loaf could also be priced at 10,000 tomans (roughly $1). This overlap creates a tangled web of numbers, making everyday transactions unnecessarily complicated.
The government’s plan to remove four zeros from the rial was intended to streamline the currency system. Official rial banknotes have already been redesigned, with the last four digits printed in a lighter color to help citizens adjust. Yet, despite these efforts, the economic reality for most Iranians remains unchanged. Inflation continues to soar, and the public’s confidence in the financial system continues to erode.
Structural Reform or Placebo Effect?
Proponents of the currency reform argue that removing zeros will simplify transactions and restore confidence in Iran’s financial system. However, critics like Arezoo Karimi, an economic journalist based in London, argue that the measure is “relatively ineffective.” She emphasizes that such reforms do not address fundamental economic issues like inflation, liquidity, GDP, or unemployment. “What was expensive in rials will still be expensive in tomans,” she told DW.
Since the reimposition of U.S. sanctions in 2018, the rial has lost over 80% of its value against the dollar. This devaluation has fueled hyperinflation, with the cost of essential goods like food and medicine doubling in the past year alone. For many Iranians, the currency reform feels like a distraction from the real issues plaguing the economy. “It doesn’t matter whether it’s the rial or the toman—everything is too expensive,” said Farshid, a Tehran shopkeeper.
Lessons from History: Successes and Failures
Currency reforms to combat inflation are not new, and history offers both success stories and cautionary tales. In the 1920s, Germany introduced the Rentenmark to replace the old mark, removing 12 zeros from the currency. While the measure initially restored public confidence, its long-term success was attributed to broader fiscal discipline, including international loans and stabilization measures supported by the League of Nations.
Similarly, Turkey removed six zeros from the lira in 2005, coupling the reform with stringent fiscal policies like reducing budget deficits and controlling inflation. Brazil’s introduction of the real in the 1990s also combined currency reform with strict fiscal measures, including reducing public sector deficits and tightening the money supply. These examples highlight the importance of comprehensive economic strategies beyond mere currency changes.
On the other hand, countries like Zimbabwe and Venezuela have demonstrated how currency reforms can fail without addressing underlying issues. Zimbabwe’s removal of zeros from its currency in the early 2000s did little to combat hyperinflation, as political instability and corruption persisted. Venezuela’s repeated attempts at currency redomination have also failed to stabilize its economy, which remains plagued by chronic deficits and reliance on the U.S. dollar.
Iran’s Outdated Financial System
Iran’s economic challenges are deeply rooted in its reliance on oil revenues and the impact of U.S. sanctions. According to Kamran Nadri, a Tehran-based economist, “Without systemic reforms, currency changes alone won’t work.” Sanctions have restricted Iran’s access to global markets, deterred foreign investment, and hampered modernization efforts in critical sectors like banking and oil.
While Iran has sought closer economic ties with China and Russia, these relationships have not offset the impact of sanctions. “Our financial system is outdated,” Nadri said. “Sanctions make it nearly impossible to attract foreign capital, which is essential for growth.”
The Human Cost: Brain Drain and Frustration
The failure of currency reform to address inflation has fueled widespread frustration among Iranians. A recent survey found that 75% of respondents believe the reform has failed to improve their economic situation. Many young, educated Iranians are leaving the country in search of better opportunities abroad, exacerbating a brain drain that threatens Iran’s long-term development.
“I’m saving every toman I can to move abroad,” one university graduate told DW. “There’s no future here.” This sentiment is echoed by many who feel that cosmetic fixes like currency reform are insufficient to address the country’s deep-seated economic problems.
The Path Forward: Beyond Currency Reform
Experts agree that Iran needs more than superficial changes to stabilize its economy. Diversifying the economy, tackling corruption, and improving transparency are essential steps. Additionally, easing sanctions through diplomatic negotiations, such as reviving the 2015 nuclear deal, could provide much-needed relief.
“Without a coordinated strategy that addresses both internal and external challenges, we’ll be back here in a few years,” warned economist Nadri. For now, the debate over the toman and the ial continues, but the real question remains: Can Iran’s leaders implement the structural reforms needed to secure a stable economic future? Only time will tell.
