The Iranian rial (IRR) is one of the most complex currencies in the global economy because of its constant fluctuations, sharp devaluations, and inflation rates, which can directly or indirectly affect global and political events. To an outsider, there is a mystery where a currency goes up and down without reason.
To what extent, therefore, is the current condition of the Iranian rial solely a result of inflation attributes? This article will analyze the factors influencing the current Iranian rial exchange rate, including inflation, sanctions, economic policies, geopolitical situations, and more. We will also examine its suitability, whether it has an inflation problem or is a competitive and political issue.
You need to surpass these challenges by the end of the article to understand the unique position of the Iranian rial and the general Iranian economy.
A Brief History of the Iranian Rial

1. The Origins of the Rial
   The current monetary unit of the nation, the Iranian rial, adopted in 1932, was once equivalent to one British pound sterling. This early value was because, till this period, Iran’s economy was relatively stable, with sound fundamentals of oil export and increased foreign companies’ investments in the market. Nevertheless, the monetary value of the rial has dropped in light of internal and external factors such as political instability and the price of oil in the international market.
2. The 1979 Islamic Revolution
   The Iranian rial experienced a critical period in 1979 following the Iranian revolution. The revolution that toppled the monarchy of Pahlavi and birthed the Islamic Republic of Iran started a new era of economic ambiguity. 
   The elimination of political relations and the vast politico-economic crisis forced Iran to face economic sanctions from the global nations, adversely impacting Iran’s currency and economy. The revolution in Iran initially had only a slight impact on the devaluation of the rial. Still, the situation changed in the late 1980s and early 1990s as the effects of world economic changes and tensions in the Middle East accumulated and deepened the depreciation of the rial.
   What Makes the Iranian Rial So Confusing?
3. Hyperinflation and the Diminishing Value of the Rial
   However, one of the causes that people may consider important is that the Iranian rial has been devalued continuously and dramatically. In the early eighties, the exchange rate was somewhat steady at 70 rials to the U.S. dollar, though it improved from what it was in the early 80s. Nevertheless, during the middle of the 2000s, the rial was sharply devalued, and in recent years, it reached the lowest rates ever. Thus, is it just inflation gone haywire?
   The short answer is: Certainly, inflation is the major factor in the rial’s devaluation, but not all the reasons—for some of which it is not only inflation—are the instability of the political situation, sanctions, or mismanagement of the economy. The rial has depreciated over time mainly because of inflation, but current political crises and the impact of sanctions have further worsened its position.
   Key Factors Behind the Devaluation:
   Inflation Challenges: The inflation problems in Iran have been greatly worsened by the government’s decision to print more money to balance the budget. This has precipitated high inflation rates and often double digits, which fuels currency depreciation. For instance, inflation is high, and with this, the Iranian rial devalues much faster than the government is willing to intervene or stabilize the economy, giving the public confidence in the currency. As price levels go up, inflation erodes the purchasing power of money. It destabilizes the economy by derailing personal and corporate alike’s future financial planning, thus enhancing the nation’s financial insecurity.
   Sanctions: The American and European Union have been particularly effective at exerting pressure on the economic sector, causing Iran to cut that sector off from the rest of the world. These constraints most affected global investment and reduced the revenues of trade. Therefore, its oil exports which are so essential for the Iranian economy suffered a huge blow and led to devaluation of the rial to aggravate the condition of Iran’s economy. The sanctions not only confine Iran’s access to international markets but also foster isolation that makes the economy frail and can restrain hope for any economic revival.
   Currency Speculation: Currency flotation has continued to provoke money inflation, as people and investors- both Iranian and foreigners – try to protect their financial worth by converting their money into foreign currencies, predominantly that of the United States. This speculative effect again influences the exchange rate, depresses it further, and deepens the Iranian economic crisis. People use other currencies, which leads to the withdrawal of the rial from circulation and inflation, which appears to be increasingly uncontrollable. That considerably increases economic instability, and the failure of confidence in the local currency makes the cyclical pattern of devaluation more acute.
4. The Multiple Exchange Rates Issue
   Multiple exchange rates are among the most confusing aspects of the Iranian rial. The Central Bank of Iran gives the rial a fixed exchange rate to the foreign currency, usually above the black market or other nonofficial rates. This difference makes it hard to establish the rial’s value competitively, nationally, and internationally, thus causing confusion both locally and globally.
   Official Exchange Rate: The Iranian government, for example, calculates a primary exchange rate while its central concern is to ensure price stability on generic items such as food and drugs. However, this rate is of no real value in the denominator and should be read this way because this rate is set by the authorities. As such, there is a disparity between the official exchange rate and the rial’s worth regarding purchasing power; there is a blur in the economy. While considered effective in regulating inflation as it occurred with basic needs, the published is too low to show the position of the rial in the overall economy and create instabilities and market problems.
   Street Exchange Rate: In contrast, the street exchange rate reflects supply and demand in Iran’s free market and is often considerably lower than the official rate. It gives a better sense of the true value of the rial using it to buy other goods and services as a foreign exchange should. This rate usually gives a better picture of the strength of the rial, but it also exaggerates the disparity between the official rate set by the Iranian government and the more realistic rate of the Iranian economy. Depending on this difference, this either represents an easy inflation and a currency devaluation within the nation or an aping of the situation.
   The problems associated with the system include confusion because, depending on the rate used, businessmen, women, and consumers can end up paying vastly different prices for the same goods and services. In a bid to control the value of the rial, the government has introduced economic distortions, promoting the black market and the fluctuation of the currency.
5. Global Isolation and Lack of Convertibility
   The Iranian rial is one of the currencies that is hardly convertible on the foreign exchange market. This is closely evidenced by the fact that Iran has not been able to convert this type of currency into a hard currency that is used in the international market, which makes it very difficult for businesses and individuals in the country to transact business with other countries of the world. Besides, the rial lacks connection to the foreign system based on the sanctions applied to Iran, which weakens the country’s efforts to stabilize its currency.
   Consequently, Iran lacks foreign investment or a stable foreign exchange market; it has to rely only on its capabilities, and these may not suffice. The result of the inconvertibility is a devaluation of the rial because foreigners no longer invest in Iranian assets and the unstable financial system.
   Is It All About Inflation?
   While inflation is a major factor driving the depreciation of the rial, it’s crucial to recognize that it is not the sole cause. The situation is multifaceted, involving political, economic, and social factors.
   Below are several reasons why the Iranian rial’s confusing state cannot be solely attributed to inflation.
6. Political and Geopolitical Factors
   As a result of the fact that Iran has been a member of the international community, its rial value has declined with time, taking into consideration the strong effect of economic sanctions imposed by most of the international actors on Iran, which rather pushed Iran to the periphery of the global economy. Though inflation is usually the result of bad economic policies, the rapid decline in the rial has much to do with politics and political sanctions. A good example is the Trump presidency’s decision in May 2018 to break the agreement and reimpose harsh sanctions on Iran due to the breakdown of Iran’s compliance with the JCPOA provisions. An outright reduction of the rial value in the foreign exchange market ensued because of this.
   The political changes have not only been malign for the Iranian nation but have also destabilized the global markets. People and companies have stepped back from investing or partnering with Iran, thus further injuring the rial’s image. As has been discussed above, the rial’s devaluations are not solely explained by inflation but are sharply accompanied by internal and external political events.
7. Sanctions and Their Long-Term Impact
   The constant value of a rial has decreased mainly due to sanctions on the country. It has been forced to rely on cash due to severe sanctions placed on its banking system, energy industry, and trade partners that have severely curtailed its standing in the international banking system. As a result, the nation has been unable to attract foreign investment or establish polite trade relations, which has caused the further decline of its currency.
   The direct consequences of the sanctions on the rial have been compounded by secondary effects evident in increased unemployment, low industrial productivity, and a shrinking workforce. These contribute to inflation, although it should be pointed out that the situation in relation to the rial is as much consequent on global isolation as inflationary pressures originating from within Iranian borders.
8. Economic Mismanagement and Corruption
   Mismanagement of the economy and poor implementation of financial policies possibly have contributed to the depreciation of the rial. Lack of proper management in Iran, ineffective resource deployment, and poor diversification lead to poor resource management in Iran.
   For instance, one can be knowledgeable that the nation’s economy relies greatly on oil exports, and thus, its economy is, at times, under threat from fluctuations in global oil prices. Pressure on Iran’s revenues and rials comes from gradual drops in prices or sanctions applied to exports. Another big challenge is corruption, which has become rampant in the public and private sectors. When resources are often provided for their private benefit, vital economic changes are prevented, thus making it harder to stabilize the rial.
   The Future of the Iranian Rial
   The outlook of the Iranian rial is uncertain despite its ties to the Iranian economy’s internal policies and world affairs. The rial can stabilize unless the sanctions are lifted or relaxed through diplomacy.
   However, the rial may face more challenges due to the high inflation rate and still escalating instabilities in the global economy. Those interested in the rial’s future or those wishing to look for currency investment opportunities should keep abreast of global events and economic indicators, in addition to all the debates related to Iran’s nuclear program and foreign policy.
   Conclusion
   The fluctuation of Iran’s rial is the sum of many factors, not only inflation, as I have illustrated in this paper. Political unrest compounded by macroeconomic mispolicies, political instabilities, and the bite from international sanctions have all badly affected the value of the rial.
   Similar to any currency, the rial has a story and possibly a future depending on economic events and the geopolitical currents of Iran. Currency markets are categorized under financial markets, and this is the right place to be if you want to keep abreast of the latest happenings. With this knowledge, investors make better decisions.