The Iranian government on Wednesday approved a plan to slash four zeros from the national currency rial, in a move seen by experts as "too simplistic".
According to a statement posted on the government's website, the move aims to bring radical reform in the country's monetary system, including changing the name of the country's monetary unit from 'rial' to the commonly used 'toman'.
"The new national currency toman will substitute the rial. Each toman will be equivalent to 10,000 rials," the website said.
The plan still has to be approved by parliament and a powerful clerical body before it takes effect.
No details have been divulged yet about the proposal but 120,000 rials equal to one U.S. dollar at present will be equal to 12 tomans after the plan is sanctioned.
The proposal was pitched earlier this year by Iran's central bank after the currency plunged to new depths due to economic sanctions imposed by the U.S. administration of Donald Trump against Iran.
The proposal had been doing rounds since 2008 but the pitch became stronger after rial lost more than 50 percent of its value last year following the U.S. sanctions.
The sharp devaluation of rial affected Iran's foreign trade last year, resulting in fourfold hike in inflation towards the end of the year.
Despite a minor recovery in past few months, the currency continues to trade at about 120,000 rials per U.S. dollar in the unofficial currency market. The official rate differs from the unofficial one.
Iran's financial market has always been marked by instability and multiple exchange rates, which includes the official rate, open market rate, and NIMA rate that pertains to online currency system launched by Iran's central bank in April 2018.
There is a sharp contrast in these rates and efforts towards rate unification have proved unsuccessful.
Market analysts blame multiple rates for market instability and corruption.
"The multiple currency rates and failure to organize the market is one of the important factors in devaluation of national currency over the years," Mahmoud Ghasemi, a market analyst, told Anadolu Agency.
A government official from the finance ministry said the decision to slash four zeros from the national currency had been in the pipeline for quite some time.
"The cabinet had received the request from the central bank and finally gave its approval," he told Anadolu Agency on conditions of anonymity.
"It is a step towards fighting devaluation of rial and bringing semblance of stability to the financial market, but needs to be passed by the parliament."
While slashing zeros from the national currency is being seen as a move that was long overdue, experts believe that for long-term results the economic policy needs to be overhauled.
"The lopping off of zeros from the tanking rial is a long time coming. Such stories appear, disappear and reappear at irregular intervals," Amin Sabooni, deputy chief editor of Iran's leading business newspaper Financial Tribune, told Anadolu Agency.
"Shaving off zeros will not help. It is the government economic policy that needs infusion of oxygen," he said. "Even in the short term, it will not deliver but I do hope I am wrong."
Mohsen Tavakol, an Iranian entrepreneur and analyst, said the idea of slashing zeros from the rial to strengthen the government's currency policies is "too simplistic".
"The value of national currency depends on many factors including country's access to international trade, efficiency of government policies, foreign investments and more," he said.
"It should be seen as a psychological move to boost the confidence of citizens in the government as well as the currency."
Tavakol hastened to add that the slashing of zeros alone will not deliver desirable results as the circle of devaluation will continue due to present economic circumstances.
