The Iranian Rial’s Economic Death Spiral

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The Grim Reaper has taken his scythe to the Iranian rial (see chart below). The Islamic Republic of Iran remains in the ever-tightening grip of an economic death spiral. The economy is ever-vulnerable because of problems created by the last Shah, and added to massively by the theocratic regime. Indeed, the economy is more vulnerable to both internal and external shocks than ever. That vulnerability will become more apparent in the face of President Trump’s tearing up of the Joint Comprehensive Plan of Action (JCPOA), and the laying on of more primary and secondary sanctions against Iran.

How fast the death spiral will spin is anyone’s guess.

The most important price in an economy is the exchange rate between the local currency and the world’s reserve currency — the U.S. dollar.  

[ZH: In fact, the Rial traded at 85,000 Rials per dollar late last night...]

In Iran, the IRR/USD exchange rate, represents the most important price. By using active and available black-market (read: free market) data for the Iranian rial, I have transformed the black-market exchange rate into accurate measurements of country wide inflation. The economic principle of Purchasing Power Parity (PPP) allows for this reliable transformation, so long as the annual inflation rate exceeds 25%.  

The chart below shows how Iran’s implied annual inflation rate has surged to an annual rate of 75.8% with the collapse of the rial’s value against the U.S. dollar. Indeed inflation has spiked in 2018.

So, what is to come of Iran’s economic death spiral? It can be summed up in one word: misery.

To get a sense of how miserable Iran is, we can look to Hanke’s Annual Misery Index. Back in February when the index was calculated, Iran ranked the 11th most miserable country, out of the 98 countries in the index. Using today’s surging inflation rate of 75.8% in our calculation of misery, Iran would a rank 3rd, just behind Venezuela and Syria.

Without meaningful reform in Iran, more of the same will be expected for its economy and the rial. In the words of George W. Bush, “this sucker could go down.”

Comments

nope-1004 Captain Nemo d… Wed, 05/09/2018 - 14:27 Permalink

Couldn't take Syria, so now they're going to try Iran.  Wonder when Soros is planning to have the Iranian Spring?

The real fall of the Rial is against the global reserve, the USD.  That's the glorious right the reserve currency has over the world:  Kill your local currency if you don't cooperate.  This is a total act of war, except people will not call it that because no tanks are involved.

Someone once said something about "give me control of the money and laws don't matter".  At least in a ground war there are rules of engagement, but not when the Fed is involved.  It has the total freedom to impoverish other humans, which is why this is worse than war.  It is a hostage taking for ransom and foreign terrorism.

Wouldn't want to call it what it really is though, as some snowflakes may get upset.  The US-of-financialized-A is a creep with no natural resources to back themselves up, only military might.  Should the rest of the world adopt a new monetary system, the fat lazy Walmart shopper is literally going to by lying in the street decaying.  Just email your congressman for help at that point lol

 

In reply to by Captain Nemo d…

Brazen Heist Heros Wed, 05/09/2018 - 14:40 Permalink

Fuck Uncle Scam's sanctions. Blockchain offers a way of bypassing them. Iran should seriously look into it, like Venezuela and Russia are considering.

It will pay off in the long run, hitting 2 birds with one stone: rendering Anglo Zionist financial bullying useless and getting on top of technological advancements. The path towards sovereignty from Zio manipulations will be worth it.

Put it this way, they don't want Iran getting nukes, and they don't want Iran becoming economically strong. You can't negotiate with such people who fail to understand basic tradeoffs. They want you down no matter what.

In reply to by Heros

curbjob Petrodollar Sy… Wed, 05/09/2018 - 15:12 Permalink

The money spent is for the defense of Iran and, considering what has happened to their neighbors,  it's probably money well spent.

Speaking of stupid money, how is construction of the US embassy in Jerusalem going ? I'm sure the base is getting antsy 'cos on the campaign trail often one couldn't hear anything above the chants of "move the embassy, MIGA, MIGA !!"

In reply to by Petrodollar Sy…

edotabin curbjob Wed, 05/09/2018 - 16:25 Permalink

LOL..... so true about the spending.

Let's say the renovations go for 1 million. Compared to a billion? What the hell were they building that required a billion? You could probably build Disney World for a billion.

Government figures are so damn skewed it isn't even funny. Anyone doing any sort of accounting for any government worldwide should quit and realize they are only qualified to flip burgers.

I mean really..... does anything ever add up? And just for shits and giggles let's say that it does, why are the results so poor?

 

In reply to by curbjob

Brazen Heist Haboob Wed, 05/09/2018 - 16:00 Permalink

No Russia does not regret Crimea not falling into the hands of CIA Porkyshenko.

And Hizballah won in Lebanon, Assad won in Syria and Iraq is now friendlier to Iran than before the Iraq invasion.

I wonder if Neocunts can smell their own bullshit? And to save you some face, that was a rhetorical question.

In reply to by Haboob

edotabin Brazen Heist Wed, 05/09/2018 - 17:25 Permalink

A while back I had written that the goal was for Israel to wind up with a portion of Syria and that all the rest was smoke and mirrors. I'm still thinking this is true. I didn't predict how large or small this area would be and I am still not.

I am also watching very closely to see if there will be any kind of retaliation for the strikes of Israel on Syria. So far the response has been zero. The way this plays out will be very telling in my opinion. 

Only actions count. The rest is a bunch of words and circle jerk articles written purposely for clickbait and emotional response.

 

In reply to by Brazen Heist

edotabin Brazen Heist Wed, 05/09/2018 - 18:21 Permalink

Hey, if Israel wishes to occupy additional land, I think it is only fair that they do their own fighting.

In any case, I still haven't seen anyone actually stand up to them. Behind the scenes, blah blah and more blah. Once I see downed planes, armies fighting etc. there is nothing going on but talk, posturing, threats and about 3000 dickheads writing useless articles predicting one outcome or another.

If the Mullahs are so enraged, let them do something about it. Israel is backed by America. So? Iran is backed by Russia. I'd say Russia is excellent backup.

Let's not dick around. The only question is whether or not someone will retaliate against Israel if they make a move. If we could bet on this I'd say Iran might attack (10%-20% chance) and Russia would not.

Peel back the layers of the onion and stop holding the whole world hostage with blah blah this and blah blah that.

 

In reply to by Brazen Heist

TRM Petrodollar Sy… Wed, 05/09/2018 - 16:43 Permalink

Curbjob is right. It is money well spent. General Clarke spelled it out for you so what you plan to do is wait until it gets to your country? Hell no! If the USA/Israel want to fight in Syria first you fight them there. Bog them down and burn through a bunch of their Wahabi Wanker mercenaries in someone else's country. By the way it is going so badly for the WWs that there may be a substantial delay in physically attacking Iran if they ever get to that point. 

In reply to by Petrodollar Sy…

DisorderlyConduct wafm Wed, 05/09/2018 - 16:14 Permalink

In this case the hostility is mutual. I'm not picking sides even. The hostility exists so the US would be foolish to facilitate Iran in any way.

Funny how the death to US meme seems to be a clear indicator here.  If the US is so very evil, why would Iran want or need the US - for anything? That kinda begs the question - who needs who here...?

In reply to by wafm

edotabin DisorderlyConduct Wed, 05/09/2018 - 18:26 Permalink

Oh but you are picking sides. See the bullshit has been applied in layers so thick that nobody goes unscathed despite your logical and moderate remarks.

You don't like the Mullahs? You fucking MIC-loving asshole. (((They))) control your every thought.

You don't think Israel is right? You Anti-Semite

It's all spun out of control. Words are borderline useless at this point.

In reply to by DisorderlyConduct

The Ram nope-1004 Wed, 05/09/2018 - 15:38 Permalink

YES - this is a good example of the USA using its currency influence to crush local currencies!  Happens all over the world.  But there is a silver lining for those countries who have this happen to them. The local economies in these countries flourish and learn to work in a non-global environment.  There local economies are primitive by our standards, but they trade in real products and services.  If the USD is ever crushed one day, and it will be at some point, the US citizens will suffer greatly while the goat herder in Iran will never really know the difference.  In the vernacular of Nassim Taleb, the non-global economies become much more 'anti-fragile'.  

In reply to by nope-1004

el buitre Captain Nemo d… Wed, 05/09/2018 - 16:31 Permalink

What Iran needs is a Rothschild central bank to end the misery of the people.  

 

If the 10 year CIA sponsored war with Iraq where Saddam killed tens of thousands with USA supplied poison gas didn't do in their government, I do not think some Zio / Soros style financial manipulation will.  Oh yeah - that was before the USA was against using poison gas (or quasi depleted uranium, or white phosphorus on brown people).  As the announcer said when the van Hindenburg blew - Oh - the hypocrisy!!

The Iranian rial is not "designed" for foreign trade.  Like Jim Willie's coming scheisse dollar, it is used exclusively for domestic consumption.  So the value of the rial versus the USD means little.  How many eggs or loaves of bread might mean something if honest and accurate.  Iran exported its oil to India with the intermediation of Turkish gold during the last sanctions and the system worked well.  Today they will probably use the Shanghai oil/gold exchange and CIPS.  They can give SWIFT the finger.

In reply to by Captain Nemo d…

tmosley Wed, 05/09/2018 - 14:25 Permalink

This is a big bargaining chip for Trump. Will the Iranians attempt to usurp that leverage in the coming negotiations by switching to a crypto based economic system?

If they are successful at making such a transition, many others will follow.

tmosley Captain Nemo d… Wed, 05/09/2018 - 14:31 Permalink

They launched their own crypto (the Petro). Adopting one that is set up properly that they can't just create more units arbitrarily is more like adopting a gold standard (governments can't summon gold from the sky either). But of course, unlike gold, crypto is infinitely portable and exists everywhere by its very nature. No-one can censor or blockade them.

In reply to by Captain Nemo d…

FireBrander Haboob Wed, 05/09/2018 - 15:15 Permalink

If governments go to crypto, it won't be long before the "limited number of coins" becomes unlimited...you really think ANY government is going to give up the ability to create as much money as it "needs"?

You think ANY government is going to allow something they don't control to take away their power of printing money?

Crypto, as you know it today, will "Cross the Rubicon" and that will be it's end.

In reply to by Haboob

NoCamelCase FireBrander Wed, 05/09/2018 - 15:32 Permalink

I fail to see the important difference between government crypto and the current digital money we already have.

 

You can't make Bitcoin work like any government controlled fiat currency on a centralised basis because the whole principle behind Bitcoin really is that nobody can control it, shut it down or even changing the protocol is a problem already after 10 years only! Just imagine Bitcoin will most probably still work in 100 years just because there is such a great incentive for it to work!

In reply to by FireBrander