And by a reset on currency I mean a reset on the value of their currency. Take Iranian rial for example, their exchange rate is 371,992 to a single U.S. dollar. Could a rial ever have a 1:1 ratio without ever collapsing? I obv not a finance bro
In: Economics
If they retitle their rials so that every 1 new rial is equal to 371992 old rials, then technically yes. However, the actual purchasing power wouldn’t change. It’d just make the 1 new rial just a differently-named quantity for 371992 old rials.
In 1985, the government of Israel replaced its currency, the shekel, with a new currency called the “New Israeli Shekel”, where 1000 old shekels were worth 1 new shekel. So… yes, it’s been done.
(Israel experienced hyperinflation in the 1980s, and after taking steps to fix that problem, the final step was to change the money so that things were priced in small numbers.)
Only by either removing a LOT of Rial out of circulation, or by issuing a “new” Rial
Not *exactly* what you’re talking about, but close enough:
https://en.m.wikipedia.org/wiki/Redenomination
A government could issue new currency, and just say “1 new riall is worth 100,000 old riall”, but that wouldn’t change the value of the currency. The US sanctions make it extremely hard for Iran to export goods, which means no one is buying riall. If that trade isolation ended, Iran could hypothetically grow its economy (or the US dollar could *lose” value) to increase the exchange rate
Yes, it happens from time to time. I was in Mexico like 25 years ago when they switched the Peso so that rather than 5000:$1, it went to 5:$1. Old Peso was accepted at 1/1000 face value, New Peso had correct value. People had like a year to swap out old bills for new ones.
Yeah, redenomination/revaluation. Happens occasionally in countries with high/hyperinflation…. Zimbabwe did it three times, knocking off like 29 zeroes.
Turkey did in 2005. https://en.wikipedia.org/wiki/Revaluation_of_the_Turkish_lira
Often it will be called the ‘new dollar’, ‘new lira’, ‘new rial’, etc.
There’s some confusion in the answers. exchange rate is independent of revaluation, because the exchange rate is also determined by international trade and capital flows. The only realistic way for the rial to be 1:1 with the US dollar over an extended period of time is for it to be pegged to the US dollar.
This has been done by many countries to other currencies before. China fixed its exchange rate to US dollars late 90s-early 2000s. the Saudi riyal has been pegged to USD for decades as well. I believe when the US used to be a British colony, it pegged its currency to the Spanish reale, although that was under a gold/silver standard instead of a fiat regime.
Fyi, it is actually Iranian rial ha 600-700K:1 ratio in reality. What you mentioned is the “official” rate.
Going back to your question, yes, it is possible to remove 6 zeros, and go even better than to 1:1 case, and government wants to do that once in a while (nowadays, they fade 0s in printed rials!), see this for example:
Iran are removing 4 zeros from its currency to deal with inflation
byu/Tim_uk74 inForex
But it’s not really needed tbh, as most of the transfers are happening online, and when people are talking with each other, one they say 1 toman (i.e. 10 rial), they actually mean 1 million rial!
As others pointed out, removing zeros doesn’t change anything in the livelihood of people in Iran. First and foremost, you need to control the hyperinflation, which is not possible without having a good relation with rest if the world.
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