Removing the 4 zeros without fundamental reforms will lead to failure.
According to some independent economic experts, the artificial devaluation of th national currency by more than 300 percent in the past year is a catalyst for the implementation of this bitter scenario for the Iranian economy, especially at a time when it is struggling with the most severe sanctions. In this regard, we have had an interview with Dr. Peyman Molavi, Secretary General of the Iranian Economists Association. This prominent economist, while expressing ignorance of the government’s possible plans regarding the resolution to remove 4 zeros from the national currency, says: “A country’s economy that is shrinking by 5 percent every year, with the policy of removing 4 zeros and changing the currency from rial to toman, is doomed to failure without fundamental economic reforms, and its negative consequences will be greater.” According to Molavi, “removing zeros from the national currency will be effective when it is accompanied by an increase in per capita income, purchasing power, and financial strength of the people, and this will only be possible with an increase in gross national product (GDP).” Read the full text of this interview.
As an economic expert, do you consider the government's policy of removing 4 zeros from the national currency to be a suitable solution to the country's financial crisis? Please explain.
The policy of removing 4 zeros from the national currency will not work if it is not based on coherent monetary and fiscal policies and accompanied by fundamental economic reforms, and will lead to failure in practice. Perhaps the government has taken the Turkish program during the time of Kemal Darwish, the country's then Minister of Finance, as a model in implementing this policy. During his time, the lira faced a sharp decline, which, along with economic reforms, resulted in positive results for the Turkish economy. However, this model is not suitable for the Iranian economy, which is under severe sanctions, and is not applicable with this version.
Please explain more about the structural problems of the Iranian economy.
The Iranian economy is structurally facing fundamental problems; the banking system crisis and the wrong structure of banks. The strength of any country's national currency depends on the sustainability of reliable sources and reserves of income (oil sales and non-oil exports), and currently our country is facing new challenges in these areas due to sanctions. Given the government's new decision to implement the removal of 4 zeros from the national currency, it is not clear to those outside the government, even members of the Economists Association as well as the country's economic activists and experts, the sustainability of the government's revenue sources and reserves. If there is a plan behind this decision, we, like other people, are unaware of it, and no complete plan or resolution has been announced in this regard. Therefore, as long as the investment horizon in the country is uncertain, there are no definite and established economic resources, there is no added value in the economy, and the country's economy shrinks by 5 percent every year, implementing such a decision will be accompanied by negative consequences. Removing zeros from the national currency is effective when it is accompanied by an increase in per capita income, purchasing power, and financial strength of the people, and as I have said, this growing trend will only be possible with an increase in gross national product (GDP). While the country's GDP per capita is getting smaller every year and the people's per capita income is decreasing, removing 4 zeros from the national currency does not reduce the problem. Of course, the government may have a plan behind this decision to implement it that we are unaware of.
As an economist and economic expert, what solutions do you suggest?
In my opinion, instead of removing 4 zeros from the national currency, the government should think about growing the GDP per capita. If the national income per capita and the purchasing power of the people increase and hope returns to society, economic growth will be achieved automatically and there is no need to implement programs such as removing zeros and changing the national currency. The economy must have the capacity to absorb, but businesses are limited and the operating cycle of enterprises is shorter and the need for working capital has increased. In the practical cycle, Iranian enterprises are currently operating at half capacity and the need to secure money from banks has increased, which makes the operating cycle larger. In such circumstances, the important question is whether investments will remain sustainable while the country's economy is getting smaller? Undoubtedly, our entrepreneurs are also aware of this issue and for this reason they avoid developing their businesses. Liquidity and pseudo-money do not lead to production and are destructive in various markets. As we clearly observed this problem in 2018, and we still have the liquidity giant, which is very difficult and difficult to absorb due to the lack of future-oriented and unclear economic platforms.
The future of the economy must be clear and understandable and tangible for each and every person in society, and this is a difficult task that the government cannot do alone. One of the important reasons for the budget deficit is the government economy, which is getting bigger every day, and the government must implement this decision once and for all and take action to shrink the government.
