New Official Currency Goes Into Effect This Week In Iran -- May 4, 2020

This is a fascinating story sent to me by an alert reader. I would have missed it.

Effective today: the toman is now the official currency of Iran, replacing the rial.

Read the wiki entry for background. 

Data points:

• Iran introduces a new currency: the toman
• the toman will be worth 10,000 rials (the current "dollar" in Iran)

My first thought when I saw this:

• Does this suggest hyper-inflation coming?

Both currencies will be legal tender, moving side-by-side, in Iran for two years, at which time the rial will disappear.

If a loaf of bread ends up costing one toman (the new currency), the individual who has only rials will have to take a wheelbarrow full of rials (10,000 rials to one toman) to buy a loaf of bread.

Actually that's not quite true: see below. A commonly used banknote in Iran is/was the 10,000 rial banknote, enough to buy one loaf of bread.

However, that naturally led to the next question. What does a loaf of bread cost in Iran?

How very interesting. From last spring, April 30, 2019:

• bread has always been the cheapest essential food in Iran
• bread is usually heavily subsidized by the government
• officially the price of bread in Iran is about 7,500 rials or 50 - 60 US cents
• last spring Iranian bread was selling for 20,000 rials (about $1.50/loaf)
• food prices rose dramatically in 2019, as the rial dropped fourfold in value against foreign currencies
• inflation, one year ago, hovered around 50%
• food prices may have increased as much as 85% between 2018 and 2019
• the president vetoed a recommendation to increase the price of bread back in 2017, but since then, loaves have been thinner, lighter in weight (sort of like Apple iPads) and lower in quality (unlike Apple iPads)

So, one can see why Iran needed to introduce the new toman.

The country has effectively "knocked" four zeroes off the rial to make a single toman.

Previously (as of yesterday):

• banknotes frequently used: denominations of 5,000, 10,000, 20,000, 50,000 and upwards to one million rials
• coins frequently used: 1,000; 2,000, and 5,000 rials

Now, I suppose:

• banknotes: denominations of 5, 10, 20, and 50 tomans
• coins currently used: worthless

Something tells me this does not bode well for Iran.