Currency Current Affairs - 2020

Iran: New Currency introduced to tackle Inflation

The Iran Government has recently come up with the decision of changing the name of the its currency to toman. The unit of Iranian currency if Rial. According to the Iranian Government, one Toman is 10,000 rials.

Highlights

Gheran is another new denomination. 100 Gheran makes a Toman. The new system was authorized by the Iranian Parliament recently to manage high inflation in the country. In order to make Toman, the four zeros in the older currency notes are alone removed. Rial will still remain legal.

Devaluation of the currency

The Iranian Currency faced devaluation during four major key points namely

  • Islamic Revolution of 1979. Many entrepreneurs and business giants left the country when the government of Western-allied Shah had collapsed in 1979. They left the country due to the fear of execution
  • End of Iran-Iraq war in 1989. After the war ended, it took 8 years for Iran to rebuild its shattered economy. During this time, Rial lost around 100% of its value as compared to the US Dollar.
  • Tenure of President Ahmadinejad. Iran was slammed with international sanctions during his reign. Rial lost its 400% value in the global market. Ahmadinejad left his power in 2013.
  • US pulling out from Nuclear Deal. This was the heaviest blow to the Iranian currency. The currency became 600% weaker than the US Dollar.

India’s Foreign Exchange touches all time high of 457.468 billion USD

RBI announced that Foreign Exchange Reserves of India has swelled by 2.52 billion USD in the week that ended on December 27, 2019. The Central Bank also said that the country’s special drawing rights with the IMF (International Monetary Fund) dipped by 2 million USD and the reserve position increased by 58 million USD. Currently, India SDR with the IMF is 1.4441 billion USD and the reserve is 3.7 billion USD.

Special Drawing Rights

The special drawing rights (SDR) is a kind of foreign exchange reserve held by countries in terms of leading currencies with the International Monetary Fund. It was created in 1969. The SDR is regarded as the basket that comprises of four major currencies of the world. It currently includes USD, British pound, Euro and Yen (Japan). The composition of the basket is reviewed once in five years. During the review, the weightage of the currency also gets altered.

Reserve Position

The Reserve Position or Reserve Tranche Position is the difference between IMF holdings of a country and the designated IMF quota of the country. The financing of the IMF is governed through the quota allocated to a country. This quota is payable in special drawing rights of the country and also in member’s own currency.

The part of the quota that can be withdrawn without any interest is the Reserve Tranche Position.

How do reserves affect Currency?

Reserves act as shock absorbents of negative effects of exchange rate of a currency. The central bank of a country (like RBI) use these reserves to maintain a stable exchange rate. The bank buys or sells the reserves depending on the direction the exchange prices are intended to move.

India does not intend to maintain a specific exchange rate. It holds reserves in terms of other currencies in order to reduce the volatility of rupee in the market. (Volatility is the risk involved in change of exchange rates).

In simple words, when RBI buys dollars to support a weakening rupee. Buying dollars creates infusion of rupees into the system leaving an inflationary effect on the economy.