Iran Mulls Massive Currency Devaluation

By The Media Line News Agency

With inflation close to 30 percent the Iranian government, together with the Iranian central bank, is considering a reform package that will include a devaluation of the country's currency, the rial, the Abu Dhabi-based newspaper The National reported.

The proposal has not yet been approved by parliament, but initial reactions suggest it will do so with ease.

Due to the high level of inflation, the purchasing power of a 10,000-rial note only equals 200 rials.

The newspaper quoted a central bank official saying that the plan would only be implemented when the levels of inflation began decreasing and prices reached some level of stability, or there would be no point in cutting the zeros from the notes.

Credit cards and Internet banking is not highly developed in Iran, leaving people forced to carry around large numbers of banknotes for everyday transactions.

One of the major promises made by the current president, Mahmoud Ahmadi Nejad, when he was elected in 2005 was to improve the situation of the country's poor. Much of this promise has been kept due to heavy government subsidies on products ranging from gas to bread.

As long as the price of oil was high on the international market the government had no problems upholding the promise; however, with the price of oil slipping towards and even below $50 a barrel, economic problems have been piling up.

A year ago, the government was forced to introduce the rationing of fuel, a highly unpopular decision in a country where people have been used to cheap gas for years.

A suggestion to introduce a Value Added Tax (VAT) on merchants in the main bazaar in Tehran resulted in a strike by the merchants until the proposal was withdrawn.

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