The regime decided long ago to drop at least three zeros, thereby making 1,000 old rials worth one new rial. One US dollar, which now costs about 10,500 rials, would then cost 10.5 rials. But the government has constantly delayed the shift. It seems to fear inflation.
On Saturday, Finance Minister Shamseddin Hossaini said the government was planning to carry out the long delayed dropping of three zeros during the current Persian year. But then he added:
“The only issue that makes the government hesitant in implementing this policy is that we need maximum price stability before removing the zeros to achieve a lasting result.”
Inflation has, however, been increasing in recent months from about 10 percent annually to around 15 percent annually, which would trigger Hossaini’s fears about a lack of price stability.
Three days later, Central Bank Governor Mahmud Bahmani ignored what the finance minister had said and instead announced that the Central Bank has begun making plans to remove four zeros from the rial. He said the completed plan will be proposed to the cabinet within six months. He said nothing abut any inflation fears.
The dropping of zeros is not a financial shift, just a cosmetic change. Financially, it will have no impact on the value of the currency. But Hossaini’s comments suggested he fears a negative psychological impact that might cause the public to flee the rial for foreign currencies, which would have a financial impact and drive down the value of the rial.
The two competing announcements hint at some friction over the issue. The Central Bank is the agency in charge of the currency. It issues notes, not the Finance Ministry.
