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Lopping 4 Zeros From Nat'l Currency Facilitates Trade

By By Sadeq Dehqan Slashing a few Zeros from the national currency was put on agenda of Central Bank of Iran (CBI) several years ago. But, recently practical moves have been adopted to this end. It seems that upon implementing this plan, at least the volume of bills used in current transactions of the people will be reduced.

In the early days of the new Iranian year (started March 21) Economy Minister Shamseddin Hosseini spoke about the possibility of eliminating three zeroes from the national currency. However, on Tuesday Governor of CBI Mahmoud Bahmani talked about the start of project of lopping four zeroes from the national currency and proposed that the project be executed in the coming months.

Addressing a press conference on Tuesday, Bahmani said CBI 's studies hint at the positive results of eliminating four zeroes from the national currency.

"The proposal for implementing this plan will be presented to the Cabinet within the next six months. If the Cabinet approves the plan and the Council of Money and Credit also verifies it, CBI will act to collect the existing bills and print new bills. It should be noted that removing four zeroes from the national currency will not affect the inflation rate," he added.
Bahmani made the above comments while previously Head of Iran Chamber of Commerce, industries and Mines (ICCIM) Mohammad Nahavandian had said in economic issues real and unreal parameters should be differentiated from each other.

Anti-Inflationary Move
"The number of zeroes in the national currency is not a real economic issue. If by eliminating zeroes, we intend to confront inflation, we should at the beginning pursue an anti-inflationary move and reach an acceptable stage in stabilization of prices. This is how slashing zeroes from the national currency will become an acceptable move," he noted.

Nahavandian also underlined that removing three zeroes from the national currency does not display the reality of economic prowess.

"The national economy needs serious macro moves. Thus, it is crucial that woes such as chronic inflation in the past four decades, effects of oil revenues on the economic system, the overt and covert budgetary deficit of the government and adverse impacts of unsuitable forex policies be heeded seriously. This way we can rectify the economy with any monetary unit. If the said cases are not heeded, we will be obliged to eliminate a few zeroes from the national currency once every few years," he noted.

He recalled that removing zeroes from the national currency only makes the lives of accountants easier. "But, if we have the illusion that such a move can replace real measures for curbing inflation, eliminating three zeroes from the national currency will be harmful," he said.

This is while some economic experts have cited slashing a few zeroes from national currency is an economic necessity for easing up trade transactions.

Money Circulation
An economic expert, Albert Beghouzian is of the opinion that eliminating zeroes from the national currency is not merely aimed at controlling inflation rate and this move is more or less effective in displacing large volumes of bills.

"Slashing four zeroes from the national currency does not entail a specific impact on macro economic parameters, such as inflation and unemployment. But, circulation of money in various transactions would become easier and accountancy as well as keeping cash will also be facilitated more effectively," he added.

He pointed to Turkey's experience in removing zeroes from its national currency.

"Turkey lopped six zeroes from its national currency, but it did not change its name. In countries where the dollar is the money used for transactions, it should be noted that each dollar consists of 100 cents.

However, if we eliminate four zeroes from the national currency, our currency would become toman and the rial would not exist any longer," he said.

He recalled that for exchanging goods that require smaller bills no solutions have been put forth so far and this results in people tending towards trading forex and coins for maintaining the value of their assets, which is inflationary by itself.

Job Opportunities
"Remedial measures should be sought for smaller bills and this is indeed a pre-condition for implementing the plan for slashing zeroes from the national currency. It must also be recalled that some people think execution of the plan will generate new job opportunities. But, let us bear in mind that this cannot happen with mere elimination of zeroes from the national currency and it requires other economic policies as well," he said.

Some other experts refer to the experiences of other countries in eliminating zeroes from their national currencies and maintain the main prerequisite for implementing this plan is controlling the inflation at the internal level.

The main target of the plan is to transform large bills to smaller ones for easing up trade transactions and accountancies. However, if the inflation rate is high, in practice after the lapse of a few years weakening of the national currency will force CBI to print larger bills and hence grounds would be paved for return of the eliminated zeroes.

© Iran Daily 2011