WORLD> Middle East
Iran finds a way to fight inflation, lopping zeros off
(Agencies)
Updated: 2008-09-02 10:18

TEHRAN, Iran -- Iran is considering lopping three to four zeros off its currency, a top official said Monday, in an apparent effort to fight out-of-control inflation that many critics blame on the country's hardline president.

A man holds bills of the newly issued Iranian 500,000-rial (35-euro) in Tehran on August 21. Iran is to lop several zeros off its currency as it battles double-digit inflation, central bank vice president Hossein Ghazavi has said. [Agencies]
 

The governor of the Central Bank of Iran, Tahmasb Mazaheri, told state run radio that monetary experts are studying three options: Cutting three zeros off the rial, cutting four zeros, or boosting each rial's value to one-hundredth of a gram of gold, or about 2,500 rials at current rates.

"We are studying all these three options," Mazaheri said on state-run radio.

The Iranian rial is now traded at 9,600 rials to one US dollar. That compares to 70 rials against the dollar in 1979, the year an Islamic revolution toppled the pro-Western Shah Mohammad Reza Pahlavi.

In June, Iran's government put the inflation rate at a whopping 26 percent. Independent economic experts say the actual inflation rate is even higher, at more than 30 percent. Prices for vegetables have tripled and housing prices have doubled since last summer.

The sharp rise in inflation has provoked fierce criticism of hardline President Mahmoud Ahmadinejad, not only from his reformist opponents, but also from senior conservatives who helped bring him to power but now accuse him of mismanaging the economy.

The currency proposals are seen as an effort by the central bank to reassert control over the country's monetary supply from Ahmadinejad and supporters. Critics blame the president for unwisely investing Iran's oil windfall and pressuring banks to lower interest rates, leading to the inflation.

But private economists say lopping zeros off the currency won't resolve the underlying economic woes, unless the government also adopts measures to boost production and move toward liberalization and a market economy.

"The solution to contain inflation is economic liberalization, absorbing foreign investment and boosting production," said economist Morteza Allahdad in Tehran.

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