Tag: Iran Hyperinflation

Value of the Iranian Rial Hits an All Time Low

For months, I have kept careful tabs on the black-market exchange rate between the Iranian rial and the U.S. dollar. This is the metric I used to determine that Iran underwent a brief period of hyperinflation, in October 2012. And, using these data, I calculated that Iran ended 2012 with a year-end annual inflation rate of 110%.

Since the start of the new year (on the Gregorian calendar), the rial has displayed new-found weakness. Indeed, its value reached an all-time low of 38,450 rials to one dollar, on Saturday, February 2. As the accompanying chart shows, it is now trading at 38,250, moving the implied annual inflation rate to 121%, from its year-end value of 110%.

How can the IRR/USD rate be so volatile? After all, both the rial and the dollar represent nothing more than fiat currencies, without any defined value. At the end of the day, the value of a fiat currency is whatever value that fluctuations in the supply of and demand for cash balances accord to a scruffy piece of paper.

The markets for both the rial and dollar respond to conjectures about the ability of the respective governments to deliver on their stated “good” intentions. When it comes to Iran, these conjectures understandably generate sharp fluctuations in the value of the rial. Indeed, it is clear that Iranians do not trust their government to deliver economic stability. In consequence, the rial continues to tumble with increasing volatility, and inflationary pressures continue to mount.

The Duration of Iran’s Hyperinflation?

Since I first estimated Iran’s hyperinflation at 69.6% per month, many people have asked, how long will it last? To answer that question, I have posted my “Hanke Chart of the Day” and will let the data speak for themselves.

 

On second thought, perhaps I should offer some “tweet-able”  hyperinflation-duration takeaways:

  • The average duration of hyperinflation is roughly 12 months.
  • The longest duration of hyperinflation is 58 months (4 years and 10 months), which occurred in Nicaragua from June 1986 until March 1991.
  • The shortest duration of hyperinflation is one month (see numbers 46-57).

When it comes to Iran and the probable duration of its hyperinflation, the specter of  “a horrible end” or “a horror without end” comes to mind.

For the latest news on Iran’s hyperinflation, follow my Twitter: @Steve_Hanke

The Iran Hyperinflation Fact Sheet

For months, I have been following the collapse of the Iranian rial, tracking black-market (free-market) exchange-rate data from foreign-exchange bazaars in Tehran. Using the most recent data, I now estimate that Iran is experiencing hyperinflation – a price-level increase of over 50%, per month.

In recent days, Iranians have taken to the streets in protest over the collapse of the rial. In response, the Iranian government has cracked down on the protestors and shuttered Tehran’s foreign-exchange black market.  Moreover, it has effectively cut off the supply of reliable economic information. Indeed, the signal-to-noise ratio in the Iranian economic sphere, which is normally quite low, is now even lower than usual.

To address this, I have prepared a fact sheet of the top 10 things you should know about Iran’s hyperinflation.

  1. Iran is experiencing an implied monthly inflation rate of 69.6%.
    • For comparison, in the month before the sanctions took effect (June 2010), the monthly inflation rate was 0.698%.
  2. Iran is experiencing an implied annual inflation rate of 196%.
    • For comparison, in June 2010, the annual (year-over-year) inflation rate was 8.25%.
  3. The current monthly inflation rate implies a price-doubling time of 39.8 days.
  4. The current inflation rate implies an equivalent daily inflation rate of 1.78%.
    • Compare that to the United States, whose annual inflation rate is 1.69%.
  5. Since hyperinflation broke out, Iran’s estimated Hanke Misery Index score has skyrocketed from 106 (September 10th) to 231 (October 2nd).
    • See the accompanying chart.

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  6. Iran is the first country in the Middle East to experience hyperinflation.
  7. Iran’s Hyperinflation is the third hyperinflation episode of the 21st century.
  8. Since the sanctions first took effect, in July 2010, the rial has depreciated by 71.4%.
  9. At the current monthly inflation rate, Iran’s hyperinflation ranks as the 48th worst case of hyperinflation in history.
  10. The Iranian Rial is now the least-valued currency in the world (in nominal terms).
    • In September 2012, the rial passed the Vietnamese dong, which currently has an exchange rate of 20,845 VND/USD.