The national currency of Iran, the rial, is expected to lose at least 57 percent of its value by the end of 2018 amidst a correction worse than that of bitcoin, and the holders of the Iranian rial are said to lose more than half of their savings stored in fiat.
Hyperinflation at 132 Percent
Due to an amalgamation of a variety of factors including strict sanctions imposed by the U.S. government on Iran, the national currency of the country has been on a steep decline since the beginning of 2018.
Since its all-time high at $19,500, the bitcoin price has fallen by 70 percent, replicating the correction it experienced in 2014. But, if the cryptocurrency market moves similarly to its correction in 2014, which was the worst correction in the market’s history, the price of major digital assets like bitcoin and ethereum would bottom out at a 75 to 80 percent drop.
Although the Iranian rial also experienced a substantial drop in its value throughout the past six months. the drop of the rial’s value was not as intense as the correction of bitcoin, and while the dominant cryptocurrency is expected to recover from the $5,000 region, the value of the rial is expected to decline by 57 percent based on mathematical data and its hyperinflation rate at 132 percent.
The inflation rate of the Iranian rial is not as harmful to the economy as the extreme hyperinflation rate of Venezuela at over 30,000 percent. The difference between the Iranian rial and the Venezuelan bolivar is that the former is still being used as a store of value and a medium of exchange within the country and amongst its allies, while the people of Venezuela have stopped using the bolivar due to its lack of monetary value.
Cryptocurrencies like bitcoin and ether, the native currency of the Ethereum blockchain protocol, have evolved into proper alternatives to failing national currencies. Even the government of Iran has expressed its intent and mid-term plan to utilize cryptocurrencies to transfer money amongst its allies, most notably Russia.
Mohammad Reza Pourebrahimi, the head of Iran’s Parliamentary Commission of Economic Affairs [IPCEA], said:
“[IPCEA has already] obliged the Central Bank of Iran to start developing proposals for the use of cryptocurrency. Over the past year or two, the use of cryptocurrency has become an important issue. This is one of the good ways to bypass the use of the dollar, as well as the replacement of the SWIFT system. They [Russia] share our opinion. We said that if we manage to promote this work, then we will be the first countries that use cryptocurrency in the exchange of goods.”
Possibility of Moving From National Currencies to Cryptocurrencies
It is possible for both governments and the people that suffer from failing national currencies to move onto cryptocurrencies that do not fall under the global financial network and cannot be censored by leading economies.
This year, the U.S. government strengthened its sanctions on Iran by preventing the country from transacting with financial institutions and entities outside of the country. The imposed control on Iran’s financial network led the value of the rial to plummet.
To avoid such sanctions, governments that oversee monetary systems that are not considered as reserve currencies could potentially utilize decentralized and public cryptocurrencies to transact money in the future, even at the risk of the market’s high volatility.