Published on: 2026-01-13
Iran's currency is again sliding, with the open-market rate near 1,457,000 rials per $1 in mid-January 2026, following a volatile stretch. Inflation remains at crisis levels (42.5% in December 2025), and the rial lost nearly half its value against the dollar in 2025.
The collapse is not a one-week panic but the product of years of high inflation, weak growth, and limited access to hard currency, now intensified by new political pressures.
The key issue is not a literal "zero," but a purchasing-power breakdown that could force a reset through redenomination or de facto domestic dollarisation.
A currency does not literally trade at "zero" while a country still exists and uses it. Even in severe crises, it usually keeps a price, even if it is an ugly one.
When people say "the rial is going to zero," they usually mean one of three things:
Purchasing power can fall to near zero for ordinary people when prices outpace wages.
The exchange rate adds more zeros, so $1 moves from 1.5 million rials to 2 million, 3 million, and beyond.
A redenomination removes zeros, effectively "resetting" the currency on paper even though the underlying problem remains.
Iran is already discussing the third option. In October 2025, Iran's parliament approved a plan to remove four zeros from the rial, with a two-year preparation period and a three-year transition in which both old and new notes would circulate.
So, the honest answer is this: the rial cannot go to zero, but it can be made to feel like it has through inflation, depreciation, and a reset of the unit.
| FX tier (simplified) | Approx. level (rials per $1) | What it usually represents | Why it matters |
|---|---|---|---|
| Official administered rate | 42,000 | Policy rate used for limited official transactions | Anchors accounting in some channels, but widens distortions when far from market |
| Preferential import support (example) | 285,000 | Subsidised allocation for selected essentials | Creates rent seeking incentives and an implicit fiscal cost |
| Open market / street rate | ~1,457,000 | Price that clears private demand for hard currency | Drives expectations, pricing, and real purchasing power signals |
Iran's FX market is not one market. It is a set of parallel rates, and the gap between them is part of the problem.
Scale of the distortion: Using 42,000 as the official anchor and 1,457,000 as the open market reference implies a gap of roughly 35 times.
A multi-tier system invites three reinforcing behaviours:
When traders expect subsidies to be removed or reallocated, they pre-price a weaker currency.
The larger the spread between official and market rates, the larger the profit pool for intermediaries, which drains scarce hard currency from productive use.
A system with too many price signals that the state is rationing foreign exchange rather than supplying it, which embeds devaluation expectations into everyday pricing.
Sanctions affect the rial primarily by restricting access to dollars earned from exports and hindering the ability to transfer funds.
For example, the post-2018 collapse is linked to the reimposition of US sanctions, including restrictions on oil exports and access to foreign currency.
When foreign currency is scarce, the open-market rate becomes a daily referendum on confidence.
High inflation is the enemy of any currency, and Iran had a 42.5% inflation rate in December 2025.
The IMF's country page also lists projected consumer price inflation of around 42.4% for 2026.
When inflation exceeds 40%, individuals seek to avoid holding cash. That often means buying dollars, gold, property, or inventory.
A weakening economy does not automatically make a currency crash, but it makes it harder to stabilise one.
In October 2025, the World Bank expected Iran's GDP to contract 1.7% in 2025 and shrink 2.8% in 2026.
Weak growth means weaker tax receipts and more pressure to finance spending in ways that fuel inflation.
In December 2025, Iran altered its currency regulations, requiring importers to acquire foreign exchange for necessary goods at the open-market rate instead of a lower preferential rate, which increased pressure on the rial.
That is a direct mechanical driver. If more imports must source dollars at the market rate, demand rises.
In late December 2025 and early January 2026, protests spread, and financial strain was a key focus in coverage.
It was described that traders were turning against clerical leadership as inflation and currency weakness squeezed livelihoods.
When political risk arises, people shorten their time horizon. That makes currency weakness self-feeding.
| Item | Reported detail |
|---|---|
| Change | Remove four zeros from the rial |
| Preparation | Central bank given two years to prepare |
| Transition | Three-year period with both old and new money circulating |
| Rationale | Simplify transactions after years of high inflation |
Iran's redenomination plan is often misunderstood as a "currency rescue." It is mainly an accounting clean-up.
For instance, if the open market value is approximately 1,457,000 rials for each $1, then following the removal of four zeros, it would appear to be about 145.7 new units for every $1, presuming the real value remains the same.
The figures appear more favourable, yet the purchasing power only enhances if inflation drastically decreases and remains low.
In short,
What it does: Makes prices readable again and reduces daily friction.
What it does not do: Stop inflation unless fiscal and monetary policy also change.
| Scenario | What happens | What it means for "zero" | Probability signal |
|---|---|---|---|
| Slow bleed (most common) | High inflation continues and the exchange rate weakens in steps | "Zero" becomes a figure of speech as more zeros are added | Inflation stays >30–40%, FX controls tighten |
| Step-change devaluation | A policy shock or funding shock causes a sharp one-off move | "Zero" feels closer because prices jump quickly | New sanctions pressure, budget stress, unrest spikes |
| Redenomination (paper reset) | Iran removes four zeros and introduces new units | "Zero" happens on the banknote, not in real life | Parliament-approved plan progresses to rollout |
All in all, a redenomination can improve convenience. However, redenomination does not solve inflation on its own: a currency's credibility comes from underlying economic fundamentals, not cosmetic changes to the number of zeros.
If inflation expectations rise further, the public's demand for dollars and gold can become relentless.
Multiple rates can create a two-speed economy: one for those who can access subsidised FX and another for everyone else.
The larger the divide, the greater the motivation to exploit the system, undermining trust and diminishing dollar demand.
Oil remains central because it is one of the few large sources of hard currency. Political instability can raise the perceived risk to exports, which can feed back into the exchange rate even before volumes change.
When living costs surge, governments often try quick fixes such as subsidies, handouts, or heavy controls. Those moves can buy time, but they can also increase fiscal pressure and distort markets.
If you want to judge whether the rial is stabilising or accelerating lower, you should watch signals that reflect real supply and demand.
Open-market $/rial levels
Inflation prints and food inflation
Any change in exchange-rate policy
Progress on redenomination
Economic growth outlook
No, not literally. "Zero" is shorthand for extreme loss of purchasing power or a redenomination that removes zeros from banknotes.
Yes. Open market snapshots in early January 2026 showed the street rate clustered around 1.47 million rials per $1, with published quotes around 1,457,000.
Yes. Many local quotes use toman in everyday pricing conventions, and some services explicitly state that 1 toman equals 10 rials.
No. Redenomination is an accounting change that can improve usability, but it does not reduce the growth rate of money, fiscal deficits, or imported inflation.
Hyperinflation is not inevitable, but the risk rises when high inflation persists, monetary financing accelerates, and confidence breaks in a way that causes rapid currency substitution.
In conclusion, the Iranian currency is unlikely to hit a literal "zero". However, it can approach a functional zero in purchasing power if inflation, liquidity growth, and confidence erosion remain entrenched.
Redenomination may soon make the numbers look smaller, but only a credible mix of fiscal restraint, monetary discipline, and a cleaner exchange rate regime can change the trajectory that matters.
Until those fundamentals turn, the market will continue to treat every rally as temporary and every policy shift as a test of credibility.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
