Iranian rial

History

The rial was first introduced in 1798 as a coin worth 1,250 dinars or one eighth of a toman. In 1825, the rial ceased to be issued, with the qiran of 1,000 dinars (one tenth of a toman) being issued as part of a decimal system. The rial replaced the qiran at par in 1932, although it was divided into one hundred (new) dinars.

Prior to decimalisation in 1932, these coins and currencies were used, and some of these terms still have wide usage in Iranian languages and proverbs:

Value

In 1932, the exchange rate with the British pound was 1 pound = 59.75 rials. This changed to 80.25 in 1936, 64.350 in 1939, 68.8 in 1940, 141 in 1941 and 129 in 1942. In 1945, Iran switched to the U.S. dollar as the peg for its currency, with 1 dollar = 32.25 rials. The rate was changed to 1 dollar = 75.75 rials in 1957. Iran did not follow the dollar's devaluation in 1973, leading to a new peg of 1 dollar = 68.725 rials. The peg to the U.S. dollar was dropped in 1975.

In 1979, 1 rial equaled $0.0141. The value of Iran's currency declined precipitously after the Islamic revolution because of capital flight from the country. Studies estimate that the flight of capital from Iran shortly before and after the revolution is in the range of $30 to $40 billion. Whereas on 15 March 1978, 71.46 rials equaled one U.S. dollar, in July 1999, 9,430 rials amounted to one dollar.

Injecting sudden foreign exchange revenues in the economic system forms the phenomenon of "Dutch disease" in a country. There are two main consequences for a country with Dutch disease: loss of price competitiveness in its production goods, and hence the exports of those goods; and an increase in imports. Both cases are clearly visible in Iran. The solution is to direct the extra revenues from oil into the National Development Fund for use in productive and efficient projects.

Although described as an (interbank) "market rate", the value of the Iranian rial is tightly controlled by the central bank. The state ownership of oil export earnings and its large reserves, supervision of letters of credit, together with current - and capital outflow account - outflows allows management of demand. The central bank has allowed the rial to weaken in nominal terms (4.6% on average in 2009) in order to support the competitiveness of non-oil exports.

There is an active black market in foreign exchange, but the development of the TSE rate and the ready availability of foreign exchange over 2000 narrowed the differential to as little as IR100 in mid-2000. However the spread increased again in September 2010 because channels for transferring foreign currency to and from Iran are blocked because of international sanctions.

Monetary policy is facilitated by a network of 50 Iranian-run forex dealers in Iran, the rest of the Middle East and Europe. According to the Wall Street Journal and dealers, the Iranian government was selling $250 million daily to keep the Iranian rial exchange rate against the US dollar between 9,700 and 9,900 in 2009. At times (before the devaluation of the rial in 2013) the authorities weakened the national currency intentionally by withholding the supply of hard currency to earn more rial-denominated income, usually at times when the government faced a budget deficit.

The widening of the gap between official and unofficial exchange ratesstood at over 20% in November 2011. This shows the correlation between the value of foreign currencies and the domestic inflationary environment.

The unofficial rial vs. US dollar rate underwent severe fluctuations in January 2012 (the rial losing 50% of its value in a few days, following new international sanctions against the CBI), eventually settling at 17,000 rials at the end of the period. Besides all the bad effects on the economy in general, this had the effect of boosting the competitiveness of Iran's domestic industries abroad. Following President Mahmoud Ahmadinejad's decision to liberalize the mechanism by which bank interest rates are set (granting banks the authority to raise interest rates to 21%), CBI announced that it would be fixing the official rate of the rial against the dollar at 12,260 rials from 28 January 2012 and seek to meet all demand for foreign currency through banks.

On September 25, 2012, the Iranian rial fell to a new low, trading at 26,500 to the US dollar. The drop followed the government's launch of a foreign exchange center a day before, that would provide importers of some basic goods with foreign exchanges, at a rate about 2% cheaper than the open market rate on a given day. The announced rate at the center on September 24, 2012 was 23,620 rials to USD. By early October 2012, Rial had further fell in value to about 38,500 Rials per USD in the free market. The Iranian rial was devalued in July 2013 as the government reduced subsidisation of the exchange rate against the dollar.

Exchange rate system

Until 2002, Iran's exchange rate system was based on a multi-layered system, where state and para-state enterprises benefited from the "preferred or official rate" (1750 rial for $1) while the private sector had to pay the "market rate" (8000 rial for $1), hence creating an unequal competition environment. The "official rate" of the Iranian rial—1,750 per U.S. dollar—applied to oil and gas export receipts, imports of essential goods and services, and repayment of external debt. The "export rate", fixed at 3,000 rials per dollar since May 1995, applied to all other trade transactions, but mainly to capital goods imports of public enterprises.

In 1998, in order to ease pressure on exporters, the central bank introduced a currency certificate system allowing exporters to trade certificates for hard currency on the Tehran Stock Exchange, thus creating a floating value for the rial known as the "TSE rate" or "market rate". This method finally replaced the fixed "export rate" (IR3,000:US$1) in March 2000, and has since held steady at some IR8,500:US$1.

In March 2002, the multi-tiered system was replaced by a unified, market-driven exchange rate. In 2002 the "official rate" a/k/a "preferred rate" (IR1,752:US$1) was abolished, and the TSE rate became the basis for the new unified foreign-exchange regime. Iran's Central Bank channels more than 90 per cent of hard currency into the local market (2012).

Forex bourse

In a move interpreted as aiming at unifying currency exchange rates, on September 24, 2012, the government launched a foreign exchange centre, that would provide importers of some basic goods with foreign exchanges, at a rate about 2% cheaper than the open market rate on a given day. This project was canceled following the strong depreciation of the rial between 2012 and 2013 but was put on the agenda again in 2015 for use in the reunification of forex rates (planned for 2017) and the introduction of currency derivatives. through the Iran Mercantile Exchange.

In addition to Banks, Exchange shops are also available for limited transactions. Exchange shops must operate under the licenses issued by Central Bank of Iran. Foreign currencies can be bought or sold at these exchange shops.

Exchange restriction

Exchange restriction arises from limitations on the transferability of rial profits from certain investments under the Foreign Investment Promotion and Protection Act and from limitations on other investment-related current international payments under this act.

Multiple currency practices

In 2010, the cases of multiple currency practices arose from the following:

1. Budget subsidies for foreign exchange purchases in connection with payments of certain letters of credit opened prior to March 21, 2002 under the previous multiple exchange rate system (see above);
2. Obligations of entities that had received allocations of foreign exchange at subsidized "allocated rates" under the previous multiple exchange rate system to surrender unused allocations to the Central Bank of Iran at the allocation rate.

Until 2012, the dollar had different exchange rates, depending where you are buying your currency

In 2012, Bank Markazi classified a long list of goods into categories with priorities 1 through 10, leaving it to the parallel market to take of all other needs. Priorities 1 and 2 are food and medicine, receiving foreign exchange at the official rate of 12,260 rials per dollar, followed by other categories with lower priorities, which are mostly intermediate goods used in industrial production.

Redenomination

Because of the current low value of rial, and that people rarely use the term, redenomination or change of currency was first proposed in the late 1980s. The issue has re-emerged and been under discussion, as a result of issuance of larger banknotes in 2003. Opponents of redenomination are wary of more inflation resulting from psychological effects, and increase in velocity of money leading to more instabilities in the economy of Iran.

On 12 April 2007, the Economics Commission of the Parliament announced initiation of a statute in draft to change the currency, claiming redenominations had helped reduce inflation elsewhere, such as in Turkey. In 2008, an official at the Central Bank of Iran said the bank plans to slash four zeros off the rial and rename it the toman. The bank printed two new travelers cheques, which function quite similar to a banknote, with values of 500,000 and 1,000,000 rials. However, they have the figures "50" and "100" written on their top right hand corners, respectively, which is seen as the first step toward a new currency.

In 2010, President Mahmoud Ahmadinejad announced that Iran would remove three zeros (not the four that had been proposed) from its national currency as part of the economic reform plan.

In April 2011, it was reported that the Central Bank is working on a six-month redenomination project to cut four zeros from the national currency and replace old bank notes with new ones, similar to the redenomination of the Turkish lira and introduction of the Turkish new lira in 2005.

A website to poll the public on the redenomination plan was launched on 21 July 2011; the public was allowed to vote on how many zeroes to cut and what the new currency's name should be. Preliminary results indicate that four zeroes would be cut (in line with the government's recommendation) and that the name will be changed to Parsi.

In 2016, the government announced its plan to remove one zero from the rial and rename it the toman (which is already the currency's superunit designation).

CIA market manipulation

It has been reported that the U.S. Central Intelligence Agency (CIA) has tried unsuccessfully to manipulate the Iranian rial over the past few years in order to destabilize the country. Iran reported arresting 20 "Forex manipulators" in 2012.

In 2013, talking about the sanctions against Iran, US Senator Carl Levin said that "Iranian Rial banknotes are printed in Europe".

Classical rial

During the late 18th and early 19th century, Silver coins were issued in denominations of  ¹⁄₈,  ¹⁄₄,  ¹⁄₂ and 1 rial.

Modern rial

The first coins of the second rial currency, introduced in 1932, were in denominations of 1, 2, 5, 10 and 25 dinar,  ¹⁄₂, 1, 2 and 5 rial, with the  ¹⁄₂ to 5 rial coins minted in silver. Gold coins denominated in pahlavi were also issued, initially valued at 100 rial. In 1944, the silver coinage was reduced in size, with the smallest silver coins being 1 rial pieces. Minting of all denominations below 25 dinar ended in this year. In 1945, silver 10 rial coins were introduced. In 1953, silver coins ceased to be minted, with the smallest denomination now 50 dinar. 20 rial coins were introduced in 1972.

After the Islamic Revolution, the coinage designs were changed to remove the Shah's effigy but the sizes and compositions were not immediately changed. 50 dinar coins were only minted in 1979 and 50 rial coins were introduced in 1980. In 1992, a new coinage was introduced with smaller 1, 5, 10 and 50 rial coins and new 100 rial pieces. 250 rial coins were introduced the following year. In 2004, the sizes of the 50, 100 and 250 rial coins were reduced and 500 rial coins were introduced. New, smaller types of 250 and 500 rials were introduced in 2009, along with the new denomination of 1000 rials.