Of Hyperinflation, Currency Denominations, Rials and Shekels, and Middle East Bribes…….
“Iran has doubled the denomination of its highest banknote to 100,000 rials ($10, £6.50), its Central Bank Governor Mahmoud Bahmani has announced. At least 150 million notes are being printed and distributed over the next three months, he told Mehr news agency. The move has been prompted by high inflation, although official figures say the rate has fallen to 10% from a peak of 29% in 2008. Mr Bahmani said the new notes should be used in place of travellers' cheques. The special travellers' cheques, which local banks issue, can each be worth up to 2m rials. Kamran Dadkhah, an associate economics professor at Boston's Northeastern University, said "astronomical" inflation in Iran in recent years had necessitated the new notes. "They have to print notes in larger denominations, otherwise people will have to take a sack of them to buy a sandwich," he told Bloomberg Business Week magazine. The Iranian government has previously said it would start reducing food and fuel subsidies later this year, in a move critics fear could fuel inflation and spark protests. The government says Iranians in lower income brackets will receive cash payments to help them cope when the cost of items such as bread and gasoline increase as a result of the gradual removal of the subsidies over a five-year period. …..”
Usually a sign of inflation, when larger denominations are issued and especially when smaller denominations are eliminated. Such a step as this Iranian one is especially necessary in economies that depend on cash transactions for a high percentage of their transactions, places like most of the third world as well as Las Vegas (notice how many $100 bills are around in Las Vegas?), and the underground economies like the drug trade and the world’s so-called oldest profession. Bribes are also usually paid in cash, less visible that way, unless the recipient is some African or Middle East potentate and the bribes are in the millions, usually for huge arms deals. Bribable potentates (African, Arab, and otherwise) who get paid bribes commissions for huge weapons deals by Western companies usually get them in transfers into their bank accounts in the West. Sometimes a front entity, or person, a retainer or minion of the potentate is used as the nominal recipient of the bribes commissions. I will not repeat here my favorite case of the huge US$ 2 billion paid by the British BAE Systems for Prince………..
The Israelis froze prices around 1985 to stem their persistent hyperinflation. Eventually they re-denominated their currency, introducing the New Shekel (I assume it is the ‘New’ to distinguish it from the less available but famous ‘ancient’ one). This raising of the denomination in Iran is a clear sign of high inflation.
Cheers
mhg
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