How Does a Currency Drop 60% in 8 Days? Just Ask Iran

In case you were wondering, this is what an economy dying looks like. More specifically, it's what a currency dying looks like. It turns out the latter implies the former, as Iran is quickly finding out.

The chart below compares the official and black market exchange rates between the Iranian rial and the U.S. dollar. The official rate is the fiction the regimes wishes its people lived with, and the black market rate is the fact they actually live with. 


Iran's currency has collapsed in two ways -- gradually and then suddenly. Iran is very much in the sudden phase right now. It took 24,600 rials to buy one dollar on September 24. It took 39,000 rials to buy one dollar on October 2. That's good for a 59 percent drop in just a week. This kind of currency cliff-diving is basically a bank run on the rial -- a bank run U.S.-led sanctions set off.

Starting in December, we've threatened to blacklist any financial institution that deals with the Iranian central bank -- in other words, force banks to choose between doing business with us and with them. The Iranian central bank is the middleman for its oil sales, so a ban on it is effectively a ban on buying oil from Iran. Now, these sanctions haven't cut Iran off from the world completely -- it has resorted to back room barter deals -- but they have cut Iran off from foreign exchange. Iran can't earn dollars if it can't sell oil -- at least not for cash. And that has sent the rial tumbling down.

That tumble turned into a free fall this past week. The Iranian regime can thank its "foreign exchange centers" for that. As Rick Gladstone of the New York Times points out, the regime recently established special -- read: better -- foreign exchange rates for importers of essentials like food and medicine. It makes sense to prioritize foreign exchange when you're running low on it, but it doesn't make sense to signal that you're prioritizing it. You might as well tell everybody to panic. Well, that's what everybody has done in Iran regardless. Nobody wants to be the last one stuck holding rials -- just like nobody wants to be the last one out the door during a bank run -- so they dump rials for whatever they think will be a better store of value. Which is pretty much anything. But the damage doesn't end there. The faster the currency collapses, the faster inflation picks up. Saving becomes futile. So does pretending you have a real economy.

There's an irony. The rial wouldn't be such a worthless piece of paper now if Iran had some of what their president Mahmoud Ahmadinejad called a "worthless piece of paper" back in 2007 -- the dollar. Funny how that works.
Jump to comments
Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

Get Today's Top Stories in Your Inbox (preview)

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus


Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.


What Makes a Story Great?

What makes a story great? The storytellers behind House of CardsThis American LifeThe Moth, and more reflect on the creative process.


Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.


Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.


Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.


The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air



More in Business

Just In