Iran's Currency Shift: Will the Toman Tackle Inflation?

Sat 1st Feb, 2025

In an effort to address persistent inflation, Iran is reviving its plans to transition from the rial to the toman, a move initiated in 2021 but stalled under previous leadership. The government aims to simplify currency transactions by removing four zeros from the rial, effectively making one toman equal to 10,000 rials.

The introduction of the toman was first proposed in 2016, with the intention of easing the burden of hyperinflation on everyday transactions. For many Iranians, the conversion from rials to tomans has been confusing, especially as prices soar. For instance, a loaf of bread currently costs around 100,000 rials, which could be perceived as either 10 tomans or 10,000 tomans, depending on the interpretation.

Although the currency reform was designed to bolster public confidence and simplify economic transactions, reality has proven otherwise. Despite the government's efforts to implement the change, inflation rates have remained high, and the public's trust in the financial system continues to wane.

A recent analysis by economic experts suggests that simply removing zeros from the currency will not resolve the fundamental issues affecting Iran's economy, such as rampant inflation, unemployment, and liquidity problems. The rial has depreciated significantly against the dollar, losing over 80% of its value since the reimposition of US sanctions in 2018. This devaluation has resulted in soaring prices for essential goods, causing many citizens to struggle to meet their basic needs.

Historically, currency reforms have had mixed results across the globe. Successful cases, such as Germany's introduction of the Rentenmark during the Weimar Republic's hyperinflation crisis, showcased the importance of accompanying fiscal discipline and structural changes. Similarly, Turkey and Brazil implemented stringent economic measures alongside their currency reforms, leading to stabilization.

Conversely, failed attempts, like those in Zimbabwe and Venezuela, highlight the risks of not addressing underlying economic and political issues. These nations experienced severe consequences from currency reforms that did not rectify fundamental economic problems, indicating that Iran's situation may mirror these past failures.

Experts argue that without comprehensive systemic reforms, including diversifying the economy and tackling corruption, the proposed currency change may be ineffective. Iran's economy heavily relies on oil revenues, and ongoing sanctions have further complicated access to global markets, deterring foreign investment and modernization efforts.

As discontent grows among the populace, a recent survey revealed that a significant majority of Iranians feel that the currency reform has failed to improve their economic outlook. Many young and educated individuals are choosing to leave the country in search of better opportunities, contributing to a brain drain that poses long-term risks for Iran's development.

To achieve meaningful economic progress, experts emphasize the need for a coordinated strategy that addresses both internal challenges and the impact of international sanctions. Easing limitations through diplomatic channels, such as negotiations to revive the 2015 nuclear deal, could play a crucial role in stabilizing Iran's economy.


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