March 30, 2007
The Islamic Republic of Iran has just issued a new 50,000 rial banknote. An eye-catching feature of the banknote is the atomic symbol on its reverse side, an orange-hued representation of six electrons in orbit. While less explicit than its atomic symbol, another part of the banknote speaks to the continuing break-down of the Iranian economy, says Clifford F. Thies, an economics professor at Shenandoah University.
The denomination of the note -- 50,000 rials -- is much larger than that of the highest banknote previously in circulation -- 20,000 rials; which 20,000 rial note was only issued three years ago. In both cases, the notes were issued because rampant inflation was making the currency of the country awkward for use as a medium of exchange:
- Prior to the 1979 Iranian Revolution, the economy was mostly a private property, market-oriented economy, and since, industry has been mostly nationalized and the economy directed from Teheran.
- Production and income, apart from the export of crude oil and natural gas, is down, and the ambitious spending programs of the government have been financed increasingly with paper money.
- Prior to the revolution, it took 70 rials to buy 1 U.S. dollar; today, the official exchange rate is 9,300 rials to 1 US dollar, and there is a vibrant black market in dollars.
Because of Iran's great oil wealth, it has been able, thus far, to stave off a hyperinflationary blow-off; other countries have not been so lucky.
Also written on the new Iranian banknote, in Arabic, is a quotation of the prophet Mohammed, that the scientists of Persia would reach to the heavens for knowledge. If the government of Iran were scientific, it would heed the science of economics and desist from inflation before it totally ruins its own country, says Thies.
Source: Clifford F. Thies, "Radioactive Money," Ludwig von Mises Institute, March 29, 2007.
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