Officials from the Iranian Central Bank have dismissed rumors suggesting the government’s contemplation of introducing a high-denomination banknote into circulation amidst the ongoing depreciation of the country’s currency, the rial (IRR).
Amidst reports indicating a potential issuance of a 5 million rial banknote, valued at approximately $7, Iranian authorities have clarified that such plans are not under consideration. Currently, the highest denomination in circulation, valued at 2 million rials, barely covers purchases worth slightly over three dollars, highlighting the severe erosion of the rial’s purchasing power over the years due to inflation and currency fluctuations.
The rial has experienced significant devaluation over the decades, exacerbated by economic challenges such as the US withdrawal from the nuclear deal in 2018 and the subsequent reimposition of sanctions, including restrictions on oil exports and international banking activities. This has led to a steep depreciation of the rial, with its value plummeting from 70 rials per US dollar before the 1979 Islamic Revolution to approximately 670,000 rials per dollar in recent times.
The rapid expansion of Iran’s monetary base, which has grown at a rate of 41% as of August, with the government printing around $460 million monthly, has further contributed to inflationary pressures. President Ebrahim Raisi’s administration, since assuming office in 2021, has accelerated the growth of the monetary base by approximately 10%, raising concerns about inflationary risks associated with such expansionary policies.
The potential introduction of larger banknotes could have social implications, particularly for foreigners exchanging money in Iran. Receiving large quantities of rial banknotes for relatively small amounts in foreign currencies could pose logistical challenges, as managing large volumes of banknotes may be inconvenient or cumbersome.
As Iran grapples with economic challenges and strives to stabilize its currency, the Central Bank’s denial of plans for introducing a large-denomination banknote underscores the complexities and sensitivities surrounding currency policies in the face of ongoing economic uncertainties.