Iran's Currency Crashes, Signaling a Major Economic Breakdown

Source: Coindoo Original Title: Iran’s Currency Crashes, Signaling a Major Economic Breakdown Original Link:

In Iran, the rial is increasingly treated less like a currency and more like a temporary placeholder. People use it to transact, but not to save, plan, or measure value. That behavioral shift explains more about the current crisis than the exchange rate itself.

In recent days, the rial crossed another threshold in informal markets, trading at levels that would have seemed implausible even a few years ago. But the real story is not the number. It is the near-total loss of confidence that now defines how money functions inside the economy.

Key Takeaways

• The rial’s collapse reflects a breakdown in confidence, not a single shock
• Inflation has turned the currency into a short-term transaction tool
• Import dependence accelerates the pass-through into everyday prices
• Without inflation control, depreciation becomes self-reinforcing

Inflation Has Rewritten Incentives

With prices rising at an annual pace exceeding 40%, holding rials has become a guaranteed way to lose purchasing power. As a result, households and businesses behave rationally: they minimize exposure to the local currency wherever possible.

Income is converted quickly into dollars, gold, or property. Even short delays carry a cost. This constant demand for alternatives drains liquidity from the rial and accelerates its decline, regardless of official policy intentions.

In this environment, the currency no longer anchors the economy. It chases it.

The rial’s deterioration did not happen overnight. It unfolded over decades, punctuated by moments of sharp repricing when inflation surged or foreign currency access tightened. Each episode reset expectations lower.

What once required dozens of rials now requires millions. That change is not just numerical; it has reshaped how Iranians think about wages, savings, and prices. The currency’s long-term decline has normalized instability to the point where extreme moves no longer shock.

Imports Turn Currency Weakness Into Daily Pain

Iran’s dependence on imported essentials ensures that exchange-rate weakness is immediately felt at the household level. Food staples, medical supplies, and agricultural inputs all rely heavily on foreign sourcing.

As the rial weakens, import costs rise. Businesses respond by raising prices, which feeds directly back into inflation. This loop reinforces itself: higher prices increase demand for foreign currency, which weakens the rial further. There is no delay mechanism left in the system.

Stopping this cycle would require more than technical fixes. Inflation would need to slow decisively, foreign currency inflows would need to become predictable, and confidence in monetary management would need rebuilding.

International estimates, including those from the International Monetary Fund, suggest inflation accelerated again last year rather than easing. That trend makes currency stabilization mathematically difficult, even before political or external constraints are considered.

As long as domestic prices rise much faster than those of trading partners, depreciation remains embedded in everyday transactions.

A Signal, Not a Surprise

The rial’s latest drop is not a sudden crisis moment. It is confirmation that the economy has crossed into a phase where expectations, not policy announcements, dominate outcomes.

When people no longer expect money to hold value, the currency reflects that belief with brutal efficiency. In Iran’s case, the exchange rate is no longer leading the story – it is following it.