Iran has formally approved a highly controversial currency redenomination, deciding to “remove four zeros” from its current currency, the rial, and introduce a new unit called the “toman”, setting the official exchange rate at 1 new toman to 10,000 old rials. The plan includes a two-year preparation period followed by a three-year phase in which the old and new currencies will circulate simultaneously. The reform is intended to address the cumbersome everyday transactions caused by hyperinflation, where figures have grown unwieldy and calculations increasingly burdensome.

On the surface, this appears to be a purely technical adjustment where the government claimed that the reform will not change the actual value of the currency. However, this measure shows that Iran’s economy is in a deep structural crisis. When a country must redenominate its currency by factors of ten thousand, it often signals that its purchasing power is on the verge of collapse. Without tackling the underlying economic problems, a simple change in face value cannot fundamentally reverse the trajectory of runaway inflation.

The fact that Iran resorted to such a drastic monetary overhaul is largely due to the rial's near-total loss of value. According to reports, Iran has long struggled with high inflation, while its black-market exchange rate has remained persistently weak. Ordinary transactions often involve sums in the millions or even hundreds of millions, to the extent that buying a single bottle of water may cost tens of thousands of rials. This not only increases the risks associated with carrying large amounts of cash and making calculation errors, but also shows the breakdown of the currency’s basic functions.

This situation did not emerge overnight. Since the United States unilaterally withdrew from the Iran nuclear deal in 2018 and reimposed sanctions, Iran’s oil exports, which account for roughly 50% of its foreign-exchange earnings, have been severely hit. As foreign-exchange reserves shrank rapidly, the government was forced to rely on central-bank money printing to keep the economy running, creating a vicious cycle of monetary expansion and soaring prices.

Yet, simply removing the zeros from Iran’s currency cannot cure the country’s entrenched inflation. Just as Iranian lawmaker Hossein Samsami noted, “a national currency’s prestige isn’t revived by removing four zeros. Instead, that can only be done by strengthening the real value of the currency”. History shows that without structural support, such reforms often end in failure. For instance, Venezuela slashed zeros from its currency multiple times in 2008 and 2018, yet persistent fiscal deficits and excessive money creation ultimately pushed inflation to an even higher level. In contrast, Turkey successfully removed six zeros in 2005 because it paired the reform with strict fiscal discipline and benefited from stable ties with Western economies. By comparison, Iran’s situation is far more precarious, where the government tax revenue has fallen to below 2.5% of GDP, and ongoing fiscal deficits continue to force the central bank to print money. Under such conditions, the new currency is likely to follow the same troubled path as the old one.

The root of Iran’s economic predicament lies in its unique power structure and its model of resource monopolization, the very same factors that also limit the effectiveness of any currency reform. Iran operates under a dual political system in which religious authority outweighs civil authority. Powerful groups such as religious foundations, notably the Imam Khomeini Relief Foundation, and the Islamic Revolutionary Guard Corps (IRGC) control key sectors, including energy and finance. Together they account for more than 50% of GDP, yet enjoy exemptions from taxes and regulatory oversight. To protect their vested interests, these groups have long resisted market liberalization and competition. For example, they reportedly blocked Turkish telecom companies from entering the Iranian market. Such monopolies have led to extreme wealth concentration, leaving ordinary citizens unable to benefit from the country’s oil revenues. Meanwhile, the government’s tax base has collapsed, stripping the state of effective fiscal tools. Against this backdrop, currency reform amounts to little more than cosmetic treatment of surface symptoms and is unlikely to address the deeper issues of wealth inequality and structural distortion.

External sanctions and Iran’s geopolitical isolation have further narrowed the space for meaningful reform. U.S. restrictions on Iran’s oil exports and financial system make it extremely difficult for the country to earn foreign currency through normal trade, forcing it to rely on oil smuggling. Although Iran has attempted to lessen its dependence on the U.S. dollar by joining the BRICS bloc and promoting local-currency settlements with the renminbi and the ruble, the international credibility of the country’s new currency remains close to zero. Even more troubling is Iran’s continued hardline foreign policy. Its refusal to negotiate with the West and its support for regional proxy forces make it unlikely that sanctions will be lifted anytime soon. Without a diplomatic breakthrough, shortages of goods and volatility in black-market exchange rates will continue to erode the stability of the new currency.

The transition plan for the currency reform also carries inherent risks. Although the bill provides for a two-year preparation period and a three-year phase in which both currencies circulate simultaneously to soften the impact, it could instead lead to pricing confusion and speculative behavior. Businesses may exploit the dual system to raise prices, or disputes may arise from unit conversions in contracts. Public anxiety over a perceived “loss of wealth”, seeing a million-rial deposit turn into just a few hundred in the new unit, could trigger waves of dollar or gold buying. Similar short-term volatility occurred during Turkey’s 2005 currency reform, but Iran’s economy is far less resilient, and its society has a lower tolerance for shocks. Under such conditions, even minor operational missteps could greatly magnify disorder.

Ordinary citizens are likely to bear the brunt of the reform’s costs. The minimum cost of living is estimated at USD 500, yet many Iranians’ wages stand at merely USD 136, leaving families under immense financial pressure even before the reform. After the denomination change, the process of re-anchoring wages and prices may widen the wealth gap. The wealthy can hedge risks by holding foreign currency, gold, and other assets, while the poor rely solely on wages and will face a dual squeeze from rising food prices and lagging income during the transition period. Moreover, the real value of people’s savings has already been eroded by inflation; the reform risks further undermining public trust in the currency system and could accelerate the dollarization of the economy.

From a historical perspective, currency redenomination often signals an impending political or economic crisis. The collapse of the German mark in the 1920s and China’s fiat currency reforms in the 1940s were both accompanied by social unrest. More recently, Zimbabwe’s repeated attempts to remove zeros from its currency failed, ultimately forcing the country to abandon its own money. These cases reveal a clear pattern: when currency reform occurs in isolation from structural adjustments, it not only fails to restore confidence but can actually contribute to runaway inflation. Iran’s current predicament bears a strong resemblance to these historical precedents. The government has lost effective economic control, privileged groups continue to extract wealth, and the general population’s living conditions are deteriorating.

Consequently, can the Iranian regime achieve structural reform? The answer is no. Supreme Leader Ali Khamenei’s so-called “resistance economy” policy is essentially aimed at strengthening self-sufficiency to counter sanctions, but in practice, it has become a pretext for foundations and the IRGC to expand monopolies. The clerical and military elite tightly control the country’s economic lifelines, leaving little room for reform by the civilian government. Even if there were internal calls for market liberalization, vested-interest groups would inevitably block them. Political succession struggles following Khamenei could further deepen internal divisions, while the rigid system makes it nearly impossible to generate genuine momentum for change.

As things stand, Iran’s currency reform appears more like a technical fix applied in desperation than the start of an economic revival. When a country resorts solely to redenominating its currency to tackle inflation, it exposes the collapse of its governance capacity. Without tightening fiscal discipline, breaking entrenched monopolies, and easing foreign relations, the fate of the new rial is likely to mirror that of the old rial. If Iran fails to confront its deep-seated structural problems, this technical currency reform may instead become a point of further decay in the national economy, with the ultimate cost borne by ordinary Iranians, each already shackled by inflation.

Final analysis conclusion:

Iran’s currency reform is essentially a technical fix that treats the symptoms rather than the root causes. Its core problems lie in a rigid economic structure, entrenched monopolies, and sustained external sanctions. Simply cutting zeros from the currency may temporarily ease the inconveniences of everyday transactions, but it cannot eradicate the deep-seated inflationary pressures. Unless Iran undertakes reforms in power distribution, reduces its dependence on oil, and restructures its foreign relations, the new currency is likely to repeat the fate of the old rial. In this sense, the reform serves more as a mirror, reflecting the intractable governance crisis at the heart of Iran’s political economy, while the wealth and trust of ordinary citizens remain the ultimate casualties of a system trapped by its own inertia.

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Yang Xite is a Research Fellow at ANBOUND, an independent think tank.