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Iranian Media Skeptical About Slashing Zeros Off Banknotes

A money changer poses for the camera with a $100 bill and the a wad of Iranian currency to show loss of value. File photo

Iranian newspapers on Monday January 7 gave extensive coverage to the Central Bank's suggestion for knocking off four zeros from the country's banknotes. The papers generally agreed that the measure will not be helpful for Iran's economy unless it is combined with monetary reforms.

It appears in a spot-check of papers that most publications are against the plan although some media outlets and analysts have cautiously welcomed the measure.

Reformist daily Aftab-e Yazd wrote that slashing zeros from banknotes will have adverse psychological impact, adding that "psychological effect appears to be the main purpose of this measure."

The daily wrote that countries such as Turkey that have taken similar measures, first reformed their economy in order to bring about economic stability.

Aftab-e Yazd called the suggestion by Central Bank "a show" which is just another one of the government's ad-hoc measures during recent months, warning that "Without economic reforms, knocking zeros off banknotes might have short-term impact, but will be useless in the long run."

The daily also added that that this measure will impose the cost of printing new banknotes on the government.

Administration-owned daily newspaper, Iran, on the other hand welcomed the measure adding that preparations for the action were being made since the 1990s. However, the daily acknowledged that similar measures in other countries have not been always successful. But even Iran daily acknowledged that knocking off zeros from banknotes could be successful if it is combined with monetary reforms that would strengthen Iran's national currency.

10,000 rial bank note used just before Islamic revolution in Iran. It was worth around $150.
10,000 rial bank note used just before Islamic revolution in Iran. It was worth around $150.

10,000 rial bank note used since 1990's in Iran, now worth 9 cents after 40 years of constant devaluation.
10,000 rial bank note used since 1990's in Iran, now worth 9 cents after 40 years of constant devaluation.

Elsewhere in Iran daily's reports, economists warned that Venezuela also slashed zeros from its banknotes but this did not solve the country's economic problems, while the measure has been successful in Turkey thanks to proper monetary reforms.

Economist Meysam Radpour told Iran newspaper that the measure will not bring about any positive change in Iran's economy. However, he added that it will simplify calculations and might also have some psychological impact on citizens. "People might feel that their national currency is stronger as the rate of exchange for foreign currency will be reflected in smaller figures following the change," he said.

For instance, if the rate of exchange for the U.S. dollar is 100,000 and by taking off four zeros, a dollar will be worth 10 Rials or simply one tuman, which is the name people use for 10 rials.

Meanwhile, Ahmad Hatami, another economist, told Iran newspaper that slashing zeros from banknotes will have no positive impact on employment, production or the inflation rate because it is not backed by fundamentals. He opined sarcastically that "the economic entertainment" might not be welcome by citizens as it has been the case in some other countries. Hatami further suggested that the government should instead reform the banking system and increase the banks' capital and enforce anti-money laundering laws.

While Iran's leading economic daily newspaper, Donya-ye Eqtesad wrote that the measure might have some success only in the midterm, another economic daily, Jahan-e Sanat described the decision as untimely a “shock" by which policy makers hope to cure one of the illnesses of Iran's economy. The daily wrote that most of the solutions thought by Iran's policy makers in the area of economy are short-term remedies that address just one problem while the economy is facing so many threats.

The problems of too much money having been printed and a turbulent forex market as well as high inflation and rising prices have caused deep structural weaknesses in the economy, wrote Jahan-e Sanat.

The paper also criticized the government and the central bank for withholding statistics that could raise awareness about what is going on in the market calling the policy "manipulation of prices."

The daily wrote, "Although slashing zeros from banknotes is per se a measure intended to strengthen the national currency and control rising prices”, yet it could create more turbulence because of the current situation of the economy. "This could lead to further price rises”.