Enduring America maintains that the most important recent development in Iran is one most people missed but which has great potential: In just a few days Iranian currency lost value (3 percent) compared to the dollar. Three percent may not sound like much until you consider the short period it took to happen. I agree with EA.
If were were talking about a week, not four or five days, that would equivalent in annual rate to 3 x 52 weeks or 156%--ASSUMING the drop continues at the same rate. Since the period involved was well under a week, the rate would equate to more that 200% annually if maintained.
Either the government nips this trend in the bud or it can become orders of magnitude worse. Preventing panic will be critical but intimidation and force won't work in this case and the government appears to lack the reserves needed to shore up the currency.
Retaining trust in the currency requires widespread public trust and confidence, especially in the honesty and competence of the rulers. Where is that trust since election day and its aftermath? Who believes any claims made now by the regime's media? With his reputation totally destroyed, can Khamenei work magic now with fireside chats on television? You decide.
At present, the price of gold coins is jumping dramatically in Iran. Watch out for any accelerated flight to foreign and hard currencies--anything but tomans.
Who in Iran occupies the best position to climb aboard an economic life boat? The same moneyed "holy" men, security force thugs, and populist president whose wasteful economic behavior, isolating foreign policy schemes, election bribes, security expenditures and massive self-enrichment led to this crisis. Regime insiders are different are different from you and I in another respect. They have the clout to get around any restrictions they introduce to stop the flight of real wealth" (i.e., anyting better than a toman).
Should widespread panic set in, anyone who saves his tomans or makes certain investments would be a fool. Sellers may insist buyers offer something of value, rather than a toman with fast decling value. Let me offer a few good examples from the notorious hyperinflation that destroyed the German economy and brought down the middle class in the early 1920's.
A customer took a wheelbarrow full of money to a store to buy some bread. The wheelbarrow didn't fit into the triangular entryway. So he left it outside, along with the cash. When he returned, some one had dumped the cash on the ground and stolen the wheelbarrow. Yes, it actually happened. I'm not exagerrating. Meanwhile government bonds and whole life insurance became worthless because a simple postage stamp cost more marks than such things were worth.
The classic example of hyperinflation occurred in Germany Germany in the 1920s. To see where may lead in Iran, I suggest the link. Note especially how the value of the mark declined at a vastly increasing rate compared to a stable currency.
Even after the mullahs are gone, Iranians won't have it easy. The damage 30 years of the Islamic Republic inflicted on Iran will continue to wreak havoc for years to come. In two sub-posts, I look at two such instances.
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