Iran may not be able to print enough Rials


Western economic sanctions imposed on Iran over its disputed nuclear program have severely depressed the value of its national currency, the rial, causing higher inflation and forcing Iranians to carry ever-fatter wads of banknotes to buy everyday items. But the sanctions also have presented a new complication to Iran’s banking authorities: they may not be able to print enough money.

At least one major European engraving company that has been providing currency production services to Iran says it has stopped doing business there. The company, Koenig & Bauer AG of Würzburg, Germany, also says it has not responded to an Iranian request for bids to make the presses to print new rials.

Koenig & Bauer’s disclosure was contained in a mailed response to a query by United Against Nuclear Iran, a New York-based sanctions advocacy group, which seized upon the 40 percent drop in the rial’s value this month to begin a new campaign aimed at the currency itself.

The group began by pressuring the Europe-based banknote industry, which has historically counted Iran as a client, into further ostracizing the country by denying its central bank the basics of a functioning currency system: the printing presses, engraving paper, anticounterfeiting technology and other services needed to provide enough rials.

“By manipulating and increasing the printing volume of the rial, the regime can bolster its floundering currency and mask the disastrous impact of its political decisions, economic mismanagement and isolation,” Mark D. Wallace, the chief executive of United Against Nuclear Iran, said in announcing the campaign.

In letters Mr. Wallace wrote to Koenig & Bauer and two other companies in the banknote business, De La Rue P.L.C. of Hampshire, England, and Flint Group of Luxembourg, he said that European Union sanctions already prohibit Europe-based banknote companies from providing such services to Iran’s central bank. Mr. Wallace wrote that his group would be “contacting relevant regulatory officials in Luxembourg and the E.U.” to ensure enforcement.

Rob Hutchison, a spokesman for De La Rue, said Tuesday in a telephone interview that his company was in compliance with the sanctions. “We don’t provide technical support or services to Iran,” he said.

Officials at Flint Group did not immediately return phone and e-mail requests for comment.

As inflation erodes the rial’s purchasing power, Iran’s central bank must increase the supply of money, which risks what economists call hyperinflation, a cycle of rising prices and rising volumes of money in circulation. Denying the bank’s ability to increase the supply of money would theoretically hasten an economic crisis.

Some economists, however, say United Against Nuclear Iran’s campaign to restrict rial circulation may have the unintended consequence of helping Iran. They point to examples of other countries that have suffered hyperinflation, notably the former Yugoslavia in 1992-1994 and Zimbabwe in 2007-2008. In both cases, the authorities could not print money fast enough to outpace their currency’s falling value and the systems collapsed — so Yugoslavs began using a new currency tied to the German mark and Zimbabweans used a currency tied to the dollar. And the cycle of higher prices ended.

Steve H. Hanke, an economist at Johns Hopkins University and an authority on hyperinflation, said that in Iran’s case, limiting the amount of rials in circulation “would solve the biggest problem they have: inflation.”

NY Times