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Go for the Gold Says Steve Hanke

Last December, the Iranian government of Hassan Rouhani passed a bill to change the name of Iran’s national currency from the rial to the toman. This would require a redenomination in which one zero was lopped off Iran’s unit of account, as 1 toman is equal to 10 rials. Without a change in the monetary and exchange rate regime, the proposed changes amount to a great illusion.

Iran’s currency is, of course, one of the many reasons for Iran’s economic dysfunction. Indeed, since the Islamic Revolution of 1979, the rial has officially lost virtually all of its value – 99.8% to be exact. Judged by the magnitude of this theft, the Revolution has been a total disaster.

While inflation has come down from its October 2012 peak, which I measured at a rate of 62% per month, the rate is still quite elevated, with the official annual inflation rate sitting at 9.6%. But, that rate is the official rate, and official statistics in Iran are always a bit dodgy. My calculations put the current inflation rate close to 20% – double the official rate.

There is a solution – an elegant solution. Iran should go for gold, a “currency” that is not issued or controlled by a sovereign. Iran could do this and retain its own currency, too.

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