Hyperinflation in Iran

by on October 4, 2012 at 7:24 am in Data Source, Economics | Permalink

Steve Hanke estimates that Iran’s monthly inflation rate has reached 70%.

When President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July 2010, the official Iranian rial-U.S. dollar exchange rate was very close to the black-market rate. But, as the accompanying chart shows, the official and black-market rates have increasingly diverged since July 2010. This decline began to accelerate last month, when Iranians witnessed a dramatic 9.65% drop in the value of the rial, over the course of a single weekend (8-10 September 2012). The free-fall has continued since then. On 2 October 2012, the black-market exchange rate reached 35,000 IRR/USD – a rate which reflects a 65% decline in the rial, relative to the U.S. dollar.

The rial’s death spiral is wiping out the currency’s purchasing power. In consequence, Iran is now experiencing a devastating increase in prices – hyperinflation.

Iran’s hyperinflation is still well below world leader Hungary whose inflation rate in July of 1946 reached 4.19 × 10^16 percent per month or Zimbabwe’s more recent November of 2008 rate of 7.96 × 10^10 percent per month.

Bill October 4, 2012 at 8:10 am

Get your internship and degree in economic warfare at Iran U. Price for tuition will increase tomorrow. Payment upfront in dollars.

dead serious October 4, 2012 at 8:36 am

So it turns out there are (shockingly) other levers to pull on the world stage other than indiscriminate bombing or black ops raids.

Can we slash our defense budget now?

Thor October 4, 2012 at 11:15 am

Yes, but would our allies (and our “allies”, and China) support us in using these levers, if we didn’t have the military we have?

dead serious October 4, 2012 at 11:28 am

Yes. Any other questions?

truelitistnot October 6, 2012 at 12:00 pm

If Iran wants nuclear weapons then so what. They will find out how absolutely boring they are to own. After all, so far the US is the only nation to have used them in war.

jimi October 4, 2012 at 1:15 pm

If there was a legitimate (or at least widely perceived) threat from the offending nation? Yes.
At least that way there must be consensus for to such a policy to be effective.

The Original D October 4, 2012 at 1:35 pm

If not for US military hegemony, those other actors would prefer that Iran gets nukes ?

@bawld October 4, 2012 at 9:00 am

If this is a substitute for bombs, etc, at what point do we consider this an act of war? Can Iran justifiably retaliate? What means could they justifiably retaliate with?

I don’t know these answers but it seems like a good time to ask these questions. I seem to recall when this was being considered that Iran considered it an attack.

KLO October 4, 2012 at 9:32 am

Is the voluntary refusal of individual nations to trade with another nation a “substitute for bombs”? Really? And just how much force would be proportionate to the harm? It is not as though Iran can convince nations that are currently refusing to trade with it to change their minds by dropping bombs on them. Even were a refusal to trade an act of war, there really is no amount of force that will ameliorate Iran’s situation. Under these circumstances, it is not hard to come to the conclusion that no amount of force is justifiable.

Noah Yetter October 4, 2012 at 11:49 am

What’s voluntary here? If I, an American citizen, wish to trade with an Iranian citizen, my government will use violence to prevent me from doing so.

Remember, only individuals act. There’s no such thing as a nation trading with another nation.

Cyrus October 4, 2012 at 12:23 pm

You free to renounce your American citizenship, after paying all applicable taxes.

Andrew' October 4, 2012 at 2:31 pm

As are you. I don’t even want the taxes.

ila October 4, 2012 at 1:07 pm

You could also try to lobby to get the sanction lifted.

Andrew' October 4, 2012 at 2:30 pm

How exactly can we lobby against whatever the CIA may be up to?

The Original D October 4, 2012 at 1:36 pm

There is no market without governance.

Cliff October 4, 2012 at 3:55 pm


Floccia October 4, 2012 at 5:11 pm

There is no market without governance.

How about the market for illegal drugs. What about any black market?

The Original D October 4, 2012 at 1:36 pm

There’s no such thing as a nation trading with another nation.

North Korea didn’t trade with Iran?

byomtov October 4, 2012 at 5:08 pm

How would you classify national governments trading with other national governments?

Ricketson October 4, 2012 at 11:51 am

A blockade is an act of war; an embargo is not.

Silas Barta October 4, 2012 at 2:26 pm

So wait, would that make an embargo an act of war against the government’s “own” people?

Think about it.

Nathaniel October 5, 2012 at 11:20 pm

Indeed it would.

TGGP October 4, 2012 at 7:55 pm

The U.S has been sponsoring terrorist attacks in Iran by the M.E.K (just de-listed from State’s list of terrorist groups!) and Jundullah. Those are more explicit acts of war.

Alexei Sadeski October 5, 2012 at 1:37 am

Can Iran “justifiably” retaliate? Just in the opinion of whom?

The UN? No, never; the US is on the Security Council.

The “International Community”? Absolutely not.

The Ayatollah? Absolutely.

axa October 5, 2012 at 11:46 am

No problem!!! Hugo Chavez supports Iran and condemns any kind act of wwr…………mmmmmm, I gues rethoric does not solve problems =(

Norman Pfyster October 4, 2012 at 9:29 am

We haven’t been trading with Iran since 1979. What’s changed? Plus, there appears to be little to no change for 18 months following the passage of the law appears. Perhaps something else is the cause.

Thonet October 4, 2012 at 9:43 am

The US and Israelhave flooded the country with fake, almost perfect banknotes.

Geoff Olynyk October 4, 2012 at 10:00 am

Iran trades with other countries than the United States, you know. I think what’s changed in recent years is that Europe and other countries have signed on to the embargo.

The U.S. has boycotted Cuba since forever, and Iran since the ’70s, but in Canada companies have always been free to do business with those two countries. Not so recently for Iran – the Canadian trade embargo is almost as strong as the American one now. Sure, this is irrelevant when just one small-ish country does it, but if they all sign on, it adds up.

Norman Pfyster October 4, 2012 at 12:06 pm

I’m sure that’s true (I believe Germany recently increased the scope of their trade embargo). What does that have to do with the passage of a US law?

ila October 4, 2012 at 1:10 pm

Leadership, in some sense. If the US is willing to put up with higher gas prices to force a positive change in Iran, then you look like a jerk if you don’t do the same.

Geoff Olynyk October 4, 2012 at 5:29 pm

Oh yeah, good point. I guess I’m violently agreeing with you: The U.S. embargo was not the main cause of the Iranian hyperinflation, but rather their other trading partners (Europe, etc.) introducing their own embargoes on Iran.

charlie October 4, 2012 at 1:40 pm

Money. Like many parts of the world, semi-dollarized but not cut off from offical sources. Also cut off from euros.

Huge opportunity for China here — turn both Pakistan and Iran into client states.

Alexei Sadeski October 5, 2012 at 1:39 am

Because no client state is more valuable than a fascist theocracy?

gurl October 4, 2012 at 9:32 am

Should the Iranians hire Alves Reis and let him loose on the American economy?
On a more serious note, it’s the government of Iran and their printing presses that is 100% responsible for this hyperinflation, I wouldn’t credit this development to Obama.

rpl October 4, 2012 at 11:30 am

You cannot deduce this from the information given. Hyperinflation can occur when a country’s real economy collapses even if the money supply is unchanged. In other words, “too much money chasing too few goods” can happen either because the money supply expands or because the availability of goods declines. In fact, if you look at actual instances of hyperinflation historically, the cause was almost always a collapse in the real economy rather than bad monetary policy. Certainly, that seems likely to be what is happening in Iran right now. It would be an extraordinary coincidence if Iranian monetary just happened to get abruptly worse following the adoption of the sanctions.

celestus October 4, 2012 at 9:34 am

I bet they blame the Jews.

thenwhat October 4, 2012 at 2:56 pm

No they blame your mom!!
so STFU and sit on your ass doggy

Geoff Olynyk October 4, 2012 at 5:29 pm

Best comment in MR history

Rich Berger October 4, 2012 at 9:35 am

Maybe the Israelis have been counterfeiting rials.

Hadur October 4, 2012 at 10:17 am

Currency inflation ranks among water polo and complaining about World War I as a national sport of Hungary. They also had some bad hyperinflation after the Great War, and the forint had a bad time in the late 2000′s as well.

FE October 4, 2012 at 10:53 am

Wow, NGDP is going through the roof. And they have a lot of catch-up growth to do before they get back to trend line. The only problem is they might not be able to make a credible commitment to maintain these policies.

Rich Berger October 4, 2012 at 11:35 am

Ha, that’s rich. And take it from one who should know.

Paging Scott Sumner!

dave smith October 4, 2012 at 11:48 am


mark October 4, 2012 at 12:16 pm

Wait! They have a sovereign currency. According to MMT, that is all they need. This chart must be a ruse, a CIA plant. Just print more tickets.

mpowell October 4, 2012 at 2:43 pm

Not to screw up a joke, but you guys do know that Sumner and even the MMT people know what a supply-side shock is right?

Rich Berger October 4, 2012 at 3:09 pm

Sure – that smoothes out the ride, right?

mark October 4, 2012 at 4:55 pm

Yes, it’s what happens when an allegedly sovereign currency runs into the real world problem that its economy is not 100% or even 99% self-sufficient and they need to buy supply from outside of the sovereign currency’s zone. And no one will take the tickets you printed.

BC October 4, 2012 at 8:52 pm

With inflation so high, shouldn’t they have -5700% unemployment or something similar?

Afreet October 4, 2012 at 10:59 am

Maybe this is a naive question, but if there is such disparity between black-market exchange rates and official exchange rates, is there anything to stop someone from buying IRR on the street and then selling it back for USD at a bank or AmEx exchange counter? Wouldn’t everyone be doing this?

Tim October 4, 2012 at 11:16 am

Usually, in these situations, the official exchange rate at government banks only functions in one direction – you can buy IRR with USD, but not the converse – in order to sterilize the transactions. If the official rate is somewhere within the realm of reality, this can be a somewhat efficient form of capital control (see China) but when it reaches nonsense proportions like this, nobody actually uses the official channels anyways.

Or, put another way – at this point, do you think the Iranian government is really looking to sell whatever hard currency they happen to have for Rials right now?

gwern October 4, 2012 at 11:03 am

And people say sanctions don’t work!

Roy October 4, 2012 at 11:15 am

It helps when the targeted country has a relatively free market economy.

Ricketson October 4, 2012 at 11:54 am

I think the issue is not whether their internal markets are free, but whether they engage in international trade.

Ricketson October 4, 2012 at 11:54 am

I don’t think it matters if their internal markets are free, but whether they engage in international trade.

BC October 4, 2012 at 9:05 pm

Actually, aren’t sanctions the equivalent of trade protectionism, except imposed by other countries instead of by the Iranian government? Shouldn’t the main effect of sanctions be to protect Iranian jobs from foreign competition?

doctorpat October 4, 2012 at 11:09 pm


B October 4, 2012 at 11:18 am

4.19 × 10^16 percent per month

That’s incomprehensible to me without electronic exchange. Do printing presses work that fast?

Ricketson October 4, 2012 at 11:55 am

1) Larger denominations
2) Expectations of inflation
3) Collapse of real economy

Derek October 4, 2012 at 12:14 pm

Yes, larger denominations. It’s like those pictures I remember seeing where the German Mark was printed exactly the same, just with several more zeroes crudely tacked on.

byomtov October 4, 2012 at 5:14 pm

The precision of that number, and the one for Hungary, is nonsense. You can’t measure prices that fast. They are changing dramatically every second.

Hoonose October 4, 2012 at 11:29 am

Why flood Iran with counterfeit toilet paper?

Every country needs to import and export to succeed in our world.

The current scenario in Iran is what happens when trade is so severely restricted from without and regimes are collapsing due to social factors from within.

They cannot get enough imports of goods and useable fiat currency or gold. And their currency is progressively less acceptable as offshore payments possibly on a daily basis. This is the spiral of currency destruction.

Bill October 4, 2012 at 12:38 pm

Let’s play an economic warfare game and figure out the equilibrium and payoffs.

Let’s say Iran does not negotiate and delays. Their current level of economic activity is the baseline and it will take 2years to develop a nuclear weapon. During this time, if they try to run out the clock, there is a high likelihood of economic collapse and or internal political fracturing. Can they go on like this for two years. And, if they were to try to tough it out, before the end of the period they would be bombed. And, from that point forward, they would have to begin again all over. Moreover, with an economy in shambles, good luck on buying weapons to engage in other conflicts.

To me, the game is over. The biggest risk to the West, or an alliance, is that they negotiate and sanctions are lifted during negotiations, or lifted just enough, so that the powers that be can control internal dissent and debate by allocating goods to their allies as the sanctions get partially lifted.

Hang tough and verify.

Hoonose October 4, 2012 at 12:54 pm

I can just see it now.
Obama loses.
Romney takes over.
And the Iranians submit on his inaugural day!

Yogi Berra October 4, 2012 at 2:10 pm

It’s all proceeding according to plan.

Andrew' October 4, 2012 at 2:39 pm

What is nice is that our meddling has never backfired. Our embargoes have always worked to soften their hearts. Our no-fly zones have always saved lives. Our containment has always prevented the need to invade, except when we did and the people threw flowers at our feet.

Andrew' October 4, 2012 at 2:44 pm

And if we are involved behind the scenes, which I can’t imagine because we’ve never done that before, it will just be another success in the long-line of making people not hate us. And this is probably the best way to make people rethink wanting to have the means to counter our strength. I can’t imagine the people of a country supporting their leaders if we disapprove of something they want to do.

gab October 4, 2012 at 5:13 pm

I understand the historical relevancy of your post(s) but in this case, economic “meddling” seems like the best of several bad alternatives. Will Iranians hate us for intevening in their economy and potentially damaging it and them for a long period? Perhaps. But would they hate us more for attempting to bomb them and their nuclear facilities and doing untold harm to thousands of Iranians? That would seem like a sure thing.

Andrew' October 5, 2012 at 5:37 am

We should offer all their nuclear scientists a house.

The irony is we wouldn’t have any jobs for them. It’s a mad, mad, mad, mad, mad world.

So Much for Subtlety October 5, 2012 at 2:27 am

It is not hyperinflation, it is hyper-quantitive easing. Coming to more places than just Iran.

As an Islamic Republic, I wonder what tools the central bank has to deal with this problem. I assume that jacking up interest rates sky high is not an option. Anyone know?

Hoonose October 5, 2012 at 3:50 pm

It’s hyperinflation, loss of faith in their currency. Unless Iran is totally sufficient within itself, their condition is not sustainable. They cannot import what they need, as no one wants (or is allowed) their currency. And they cannot export to obtain more usable currency. The Iranian people then don’t even want their own currency. Economically they are locked out by mandatory forces from without.



QE’s in the US are essentially asset swaps. Not very inflationary as they really don’t create money for the general circulation. They do lower interest rates and the value of the dollar, but that’s part of their intent. QE is not printing money to make up for any lack of faith in the USD, and are optional forces from within. The US still has open global markets and can still freely trade and use USD almost anywhere. There are still huge demands for USD, but not for Rial.

ben October 5, 2012 at 3:58 pm

What happens when that huge demand for USD no longer exists?

Foo October 5, 2012 at 5:06 pm

The article and post talk about everything except the interesting part: what’s the reason for the recent hyperinflation?

Is there an expectation of imminent war?
Is Iran printing money?

Also, are the prices of domestic Iranian goods also rising, or only of foreign goods?

Anyway, it seems to me they can just switch to using euros (or dollars) as their official currency, although the transition might be painful.

LS October 6, 2012 at 7:29 pm

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