Ravaged past crippling hyperinflation, Iran's Parliament has sanctioned the redenomination of its fiat — the rial — by replacing it with a new currency called the toman. Co-ordinate to the plan, each toman will be worth ten,000 rials.

The redenomination plan effectively removes four identify values (4 zeros) from the Iranian national currency as part of efforts to kickstart an economic recovery from the land. It is a move that echoes steps taken by other countries similar Venezuela and Zimbabwe amid huge inflation.

With the United States exiting its nuclear deal with Islamic republic of iran and reintroducing sanctions, the state'southward economic situation has been in a tailspin. Virtually frozen from the international scene, Islamic republic of iran has been facing a severe liquidity crunch and foreign exchange shortage.

Typically, people living in countries suffering from an economical crisis turn to cryptocurrency not simply as a way of preserving wealth but also as a means of conveying out international transactions. Islamic republic of iran'due south case is not dissimilar, with Bitcoin's (BTC) price even rising to a hefty 300% premium on peer-to-peer exchanges like LocalBitcoins.

Iran's struggle with hyperinflation

In May 2022, U.Due south President Donald Trump exited the Joint Comprehensive Plan of Activity — commonly known as the Iran nuclear bargain — and reimposed sanctions on Tehran. This conclusion put enormous pressure on the country's already fragile economic state of affairs. Commenting on the impact of U.S. sanctions on Iran, Babak Behboudi, the CEO of blockchain innovation house Synchronium remarked:

"The U.S. sanctions are the major problem facing the Iranian economy in recent years, which have paralyzed a significant part of the economy. In an economy like Iran, where a significant role of the economy is still land-owned, such sanctions foreclose economic stability and growth."

While the deal was in identify, Iran's economic system was open up to the international scene, benefitting especially from increased oil exports. Indeed, the country's president, Hassan Rouhani, ran his 2022 election campaign based on programs that would leverage the opportunities afforded by the accord with the U.South.

Iran's inflation rate year-to-year comparison

However, the rial was evidently deteriorating even before the U.South. repudiated the nuclear deal, with the state's aggrandizement rate more tripling between 2022 and 2022. Indeed, the lifting of sanctions in 2022 did little to spur any growth in real gross domestic production. Between 2022 and 2022, protests broke out in many Iranian cities with people voicing their dissatisfaction over the rising toll of living among other grievances. By August 2022, Iran's rial had lost more than than 80% of its value in barely a year.

Faced with a quickly failing economic situation, the central bank began placing restrictions on forex, a movement meant to checkmate the strange exchange black market. The escalating rial devaluation meant the emergence of an expanding bid-ask spread on Nima — the country's secondary forex market.

At the kickoff of May 2022, the bid-inquire spread — the difference between the ownership and selling rate for forex — stood at about ix,000 rials. Exporters of non-essential goods in Iran use Nima, and the widening bid-ask spread on the marketplace means having to liquidate overseas earnings at a much cheaper rate that, in turn, harms the profitability of such ventures.

The existence of a secondary forex marketplace is in function due to the inability of the government to create a unified commutation rate. The regime's failure in this regard meant that a greater percentage of forex deals moved to the black market place where participants could speculate on the unending volatility of the rial–dollar exchange rate.

At the time of writing, while the official authorities rate is most 42,000 rials to $1, the blackness market rate is almost four times higher — with $1 selling for 163,500 rials. Indeed, the Nima rate has also begun to approach the black market place figures with $1 worth 157,320 rials.

Currency redenomination plans

Iran's economic situation has also non been helped by the outbreak of COVID-19 with the country's currency going into a deeper dive since February. The country has been hit hard by the mortiferous coronavirus with over 6,500 deaths from near 104,000 cases since the outset confirmed infection in mid-February. Co-ordinate to an April report from the Earth Banking concern due to the dwindling oil revenues, the country's Gdp growth will continue to lag. The report reads:

"Persistence of lower oil prices and consign volumes (e.g., due to a meaning decline in China's oil need) would result in a substantially larger overall shock and fiscal arrears in 2022/21."

On Monday, May 4, 2022, Iran's Parliament authorized the redenomination of the land'south fiat, eliminating four zeros and replacing the rial with the toman. According to the plan, each toman will be equivalent to ten,000 rials. The move, more than a year in the making, began with a draft pecker prepared by the governor of the Primal Depository financial institution of Iran. Opting for a redenomination also marks a departure from the usual arroyo of Iran devaluing its currency — which happened about iii,500 times since 1971.

Rate of rial devaluation over past 10 years

Some commentators like government spokesperson, Ali Rabiei, accept said the move will help to simplify financial transactions in the country. However, critics of the plan believe it does nothing to solve the fundamental issues affecting the economy.

Tehran tardily to the political party

In a conversation with Cointelegraph, Ali Beikverdi, the CEO of crypto exchange deployment service bitHolla, remarked that Iranians accept already been redenominating the land's fiat to suit unlike purposes. According to Beikverdi: "Currency denomination in any country doesn't solve whatever fiscal or economical bug. The only thing it does is aggrandizement. However, I must say in Islamic republic of iran this has been a matter of debate for quite some time." Explaining the confusion caused by multiple rial benchmarks in the country, Beikverdi added:

"While banknotes utilize Iranian rial, people already drib one zero and call it toman. And then, one toman = 10 rial today. To add more than to that confusion, people even drop three more zeros from toman to make the numbers smaller, and that is very disruptive if you are not familiar with it. So, the currency denomination has already happened among people for simplicity, and this is nothing new."

With multiple forex benchmarks existing within the land, the government's redenomination plan might struggle to achieve the desired results especially given the historical precedence surrounding such actions. For Behboudi, it is still too early to determine the effectiveness of the government's plan, arguing that taking four zeros of a currency will not have much upshot in itself:

"Such an effort can exist a practiced small step for a serious, wider, and more effective series of reforms, including well-planned privatization of the economy, decreasing the monetary system expenses, and ease of cyberbanking operations."

In a conversation with Cointelegraph, a spokesperson for Iran'due south Ministry of Finance derided the programme to create a new fiat currency for the state, declaring:

"Everybody in the land knows that redenomination has no outcome on inflation. Most economists think information technology is not a sustainable time for redenomination. Due to coronavirus and oil prices, the acquirement of the government has fallen sharply, and at the aforementioned time, the costs accept grown. So, we await high inflation."

Bitcoin comes onto the scene

Among the backdrop of the plans to revamp Iran's currency, Cointelegraph reached out to Areatak, a blockchain solutions provider based in Tehran. Dorsum in May 2022, Cointelegraph reported that Areatak — in partnership with the Information science and Services Corporation of Iran'southward central bank — was developing Borna, a national blockchain project aimed at transforming the country's banking and financial sector. In a message to Cointelegraph, Areatak CEO Saeed Khoshbakht revealed the latest updates with the project, stating:

"Borna infrastructure and platform is passing the first phase of test and information technology will be ready soon to launch. As mentioned in the whitepaper, Borna tin host central bank cryptocurrency, and maybe information technology is used in this economic development. Only the conclusion is for the central bank and ISC."

While the government tries to solve the growing inflation problem, crypto stakeholders in Islamic republic of iran say the situation favors a more broad-based adoption of cryptocurrencies. Indeed, high ranking officials within the country'due south government and armed forces have called for the employ of digital currencies to evade crippling U.S. sanctions. Commenting on the growing adoption levels of crypto in Iran, Khoshbakht remarked:

"If nosotros analyze the adoption of cryptocurrency usage in the world we find two types of countries are in front of the list. Countries with a lack of digital payment systems and countries with loftier inflation. Because of Loftier aggrandizement in Islamic republic of iran, people don't trust to national currency and attempt to buy everything such every bit real manor, gold, stock, other currencies like the U.S. dollar and cryptocurrency."

Tehran's opinion on crypto mining has noticeably softened with the authorities assuasive Bitcoin miners to gear up store in the country. Every bit previously reported past Cointelegraph, Islamic republic of iran has issued well-nigh 1,000 licenses to crypto miners in the land.

Related: Five Countries Where Crypto Regulation Inverse the Most in 2022

Earlier in May, the country's Ministry of Industry, Mining and Trade besides gave the get-ahead to Turkish crypto mining business firm iMiner to establish a vi,000-rig facility in the Semnan province. Iran has too given tax breaks to crypto miners on the status that they repatriate all foreign earnings. According to Behboudi, crypto is primed for even greater adoption in Iran, calculation:

"Mining, property and trading of cryptocurrencies, particularly BTC and ETH, is widely adopted in Islamic republic of iran. I'g sure in next months nosotros will see more than investment by the public, especially the middle class, in cryptocurrencies like BTC."

For Beikverdi, the economic crisis in the country is simply setting the stage for more people to cull cryptocurrencies. "Once you lot see your currency loses its value more than five times in nearly two years, as an investor, you seek alternatives as a store of value," remarked the bitHolla CEO.

Indeed, Bitcoin P2P trading data shows significantly higher BTC premiums in Iran since the start of 2022. On LocalBitcoins, Bitcoin has steadily sold for between 300% and 400% of the global average spot price.

For example, while Bitcoin traded at around $7,800 in early January, the quoted cost for BTC on LocalBitcoins was the equivalent of over $25,000. While BTC recovered from the Blackness Thursday flash crash of March 12, the cryptocurrency seemingly traded for $21,000 while the global boilerplate hovered higher up $5,200.