Shocking! The Weakest Currency In The World

  • The weakest currency in the world is the Iranian Rial
  • The Rial was first introduced in 1798 as a coin worth 1,250 dinars or one eighth of a Toman.

The weakest currency in the world is still the weakest. The world economy is facing a pandemic and for countries like Iran, it can only get worse.

It is understandable that as Nigerians we see our country as the first in all things bad in the world today. It is a general feeling because we have a government that does more of mismanagement than anything else.

The country has been moving steadily to a complete rot since it was allowed into existence in 1960. And even though it is not the weakest, it is definitely not near the currency with the highest value.

Things are getting worse, especially in these moments of corona virus that is making the country a subject of ridicule on the international scene.

Corona virus in Nigeria has revealed the ugliest truth so far, that we are broke as a country. The public purse is empty while the personal treasure vaults of the ruling class is overflowing with public funds.

But even in this strange times the Naira is still far from becoming the weakest currency in the world.

So Which Country Operates The Weakest Currency In The World?

Weakest Currency In The World

The Iranian Rial

The Iranian Rial is the weakest currency in the world and has been for a very long time.

Iranians commonly express amounts of money and prices of goods in tomans. Even though the toman is no longer an official unit of Iranian currency. But that is going to change in the future.

As the Iranian Parliament in May 2020 has authorized the replacement of the rial with the toman. Each toman will be worth 10,000 rials under the new system. A plan to cut four zeros from its Rial while changing its name from the Rial to the Toman, all in a bid to revamp a failing economy, worsened by U.S. sanctions.

The change was instigated by a draft bill presented in early 2019 by the governor of Iran’s central bank, Abdolnasser Hemati. Who pointed out that the currency has been devalued 3,500 times since 1971 and that Iran had no choice but to “save the face” of its national currency.

The Central Bank is expected to use two years in implementing the change, of removing rials from circulation and introducing tomans to the public.

The country operate a complex, three-tier system of exchange rates. This includes the official rate of IR42,000 to the dollar, The open market rate of around IR120,000 to the dollar. And the third rate, known as the Nima rate, which stands around IR110,000 to the dollar. [1, 2]

NIMA is the Persian acronym for an online currency system launched by the Central Bank of the Islamic Republic of Iran (CBI) in April 2018. It is a market where Iranian exporters can sell their foreign currency earnings for Iranian rials. The NIMA exchange rate places a higher value on the rial than the open market rate. 

NIMA deals only in hawala, an Islamic system for moving money to distant locations – usually across borders – that operates outside the formal banking system (which is helpful due to fact that majority of the country’s banks have been cut off from the global financial system because of US sanctions).

In a hawala transfer, dealers operate in a network built on trust. It’s less expensive than moving money through the formal banking system, and globally, it’s very popular with migrant workers who want to send remittances home. But despite all the finacial twists and plots, the Iranian Rial still remains the weakest currency in the world.

The Rial was first introduced in 1798 as a coin worth 1,250 dinars or one eighth of a Toman. The Rial wasn’t always this worthless. In 1945, the Rial was pegged to the U.S. dollar at 1 dollar = 32.25 rials. But since then its financial worth has become almost an insult when compared to the US dollar.

The value of the Rial declined seriously after the Islamic revolution because of capital flight ( Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence ) from the country.

Studies estimate that the flight of capital from Iran shortly before and after the revolution in the range of $30 to $40 billion. Another powerful reason for the bad state of the Iranian Rial is due to international Sanction’s imposed on the country.

On 9 April 2018, the Rial fell to its lowest rate in 35 years of around 60,060 rials to USD for any kind of business. The withdrawal of the United States from the nuclear agreement in May 2018 and the re-introduction of U.S. sanctions accelerated the devaluation of the Iranian national currency. The sanctions have cut Iran’s crude oil exports from more than 2 million barrels per day by almost 90%.

Official rate
US$1 = 41730 rials
(Mar 31, 2020)
Parallel rate
US$1 = 166200 rials
(Mar 31, 2020)

1 Iranian Rial equals
0.0092 Nigerian Naira
 
According to the then U.S. Treasury Undersecretary David Cohen under the Obama administration:

“Ordinary Iranians are urgently seeking out foreign currency such as dollars or euros for safety, yet they are having trouble accessing hard currency, and when they can, they have to pay the unofficial market rate,” said Cohen, the Treasury undersecretary for terrorism and financial intelligence. Hinting that the economic situation in the country is encouraging a profitable Arbitrage for the power class in Iran.

“At the same time, senior government officials and preferred businesses, including IRGC-owned and controlled operations, are able to access foreign exchange at the official rate, essentially engaging in profitable arbitrage on the back of the average Iranian,” 

According to Ali Alfoneh, an Iran researcher and IRGC specialist at the American Enterprise Institute in Washington.

“The wrong people are benefiting,” while ordinary Iranians suffer inflation, feeble economic growth and a decline in the rial brought on by sanctions, he said. [3]

The sharp rise in coronavirus cases has also forced the closure of most of its borders, threatening the non-oil exports that are its main economic lifeline.

“The economic risks are significant. Iran’s lifeline over the past year has been non-oil exports to neighbouring countries,” said Henry Rome, an analyst at Eurasia Group.

“If these temporary border closures extend indefinitely, Iran could face a serious economic crisis, at a time when the economy had actually started to turn around.”

The coronavirus pandemic and the decline in crude oil prices have over the past few months contributed significantly to the depreciation of the Iranian currency and a hike in the price of gold in the market.

According to the Iranian Vice President Eshaq Jahangiri the U.S. sanctions, the coronavirus outbreak, a drop in oil prices and a slump in the global economy had caused “perilous conditions” for Iran’s economy.

According to Iranian officials the U.S. sanctions have hampered their efforts to deal with the coronavirus outbreak.

The International Monetary Fund expects Iran’s growth to be flat this year after a 9.5% contraction last year in the wake of the U.S. sanctions, which curbed oil sales and pushed annual inflation to close to 40%.  [4]

The Devaluation Of The Iranian Rial

“The authorities had originally planned to implement a unified rate by March 2019, and the quicker roll-out of the policy demonstrated the president’s intensifying concern with the currency’s weakness,” says Ehsan Khoman, head of research and Mena strategist at Japanese lender MUFG.

“Unification attempts have not proven successful to date.”

Iran’s central bank restrictions on foreign currency transactions in an effort to shut down a flourishing black market and halt the rial’s slump has also worsen the situation. “These factors have discouraged rial-denominated investments and led to a surge in demand for hard currency,” says Andrine Skjelland, country risk analyst at BMI Research.

“The Iranian rial has devalued in large part due to uncertainty over Iran’s economic trajectory following the US nuclear deal exit, but also given the forceful implementation of the ban on trade outside the official exchange rate in April, and considerable speculative activity,” says Ms Skjelland. [5]

Fear over the future of the Iranian Rial has forced Iranians to go for more solid and stable financial options like the dollar and other valuable foreign currencies. Forcing the government to impose a limited amount of foreign currency that people were allowed to keep in cash to €10,000 (£8,700) or equivalent.

While Iran remains the country with the weakest currency in the world. It is very possible that Africa can one day fall into this sort of financial nightmare with the increasing rate of corruption and government turning a blind eye to domestic terrorism and religious intolerance.

Our next article would be about the weakest currency in Africa. Do not forget to check back!

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