A few days ago, the New York Times reported that due to Western economic sanctions imposed on Iran over its disputed nuclear program have severely depressed the value of their national currency, the rial, resulting in higher inflation and forcing Iranians to carry larger quantities of banknotes to purchase daily items.
At a time of higher inflation, the Iran’s banking authorities face a new complication- can they print enough money?
Several European companies that have been providing currency production services to Iran have stated that they have stopped doing business there, including De La Rue, England, the Flint Group of Luxembourg, which said it was no longer active in Iran and Koenig & Bauer AG of Würzburg, Germany, who has not been responsive to an Iranian request for bids to print new rials.
Against Nuclear Iran, a New York-based sanctions advocacy group has seized upon the 40 percent drop in the rial’s value this month to begin a new campaign aimed at the currency itself. Against Nuclear Iran group began their campaign by pressuring the European bank note industry, which has to date counted Iran as a client, into further alienating Iran by denying the Iranian central bank the basics of a properly functioning currency system; for example, engraving paper, anticounterfeiting technology, printing presses and other services required to provide enough rials.
Mark D. Wallace, the chief executive of United Against Nuclear Iran, said in announcing the campaign; “by manipulating and increasing the printing volume of the rial, the regime can bolster its floundering currency and mask the disastrous impact of its political decisions, economic mismanagement and isolation.”
As inflation erodes the rial’s purchasing power, Iran’s central bank will have to increase the supply of money; thus, risking what economists call hyperinflation (a cycle of rising volumes and prices of money in circulation). Denying the Iranian central bank’s ability to increase the supply of money would theoretically hasten an economic crisis.
That said, some economists say the United Against Nuclear Iran’s campaign to restrict rial circulation may have the unintended consequence of helping Iran. The economists point to country examples of where hyperinflation happened such as Zimbabwe in 2007 and 2008 and the former Yugoslavia from 1992 to 1994. In both these cases, the authorities could not print money fast enough to outpace their currency’s falling value and the systems collapsed.
SOURCE:
The New York Times: Iran Sanctions May Cut Supply of Currency, Post Gazette.com
