What Is the Iranian Rial (IRR)?

IRR is the currency abbreviation, or FX symbol, for the Iranian rial, Iran's official currency. The rial, named after the Spanish real, first appeared in 1798, and is issued and managed by the Central Bank of the Islamic Republic of Iran.

Key Takeaways

  • The Iranian rial (IRR) is the national currency of the Islamic Republic of Iran.
  • While the rial is not officially pegged to another currency, its value has remained stable at around 42,000 IRR per U.S. dollar for the past several years.
  • Iran's economy is largely based on petroleum refining and exports, but economic sanctions due to its nuclear program have stifled its position as a player in global finance and trade.
  • IRR is sometimes considered to be a blocked or inconvertible currency since it is not freely traded on the global foreign exchange market.

Understanding the Iranian Rial (IRR)

One Iranian rial is made up of 100 dinar, but dinar are of no practical use because they are worth so little. Locally, the IRR uses the Arabic symbol ﷼. As of August 2021, one U.S. dollar is worth roughly 42,000 IRR.

While the rial was introduced in 1798, a currency called the toman was used from 1825 to 1930. The rial was reintroduced in 1932. Its value plummeted following the 1979 Islamic revolution.

Today, Iran is an oil-exporting country and influential member of OPEC, with nearly half of the government's budget funded from the sale of oil. Banknotes of its currency are issued in denominations of 100, 200, 500, 1,000, 2,000, 5,000, 10,000, 20,000, 50,000, and 100,000 rials, while coins circulate in denominations of 50, 100, 250, 500, 1,000, 2,000, and 5,000 rials.

The IRR is not pegged to the U.S. dollar or any currency, meaning it's a free-floating exchange rate. However, Iran's central bank implements currency controls to keep the exchange rate stable. Iran may be preparing regulations for bitcoin and other cryptocurrencies, according to reports.

A stable exchange rate typically helps a country prevent capital flight or investment capital from fleeing the country in search of more stable returns.

The Iranian Rial (IRR) Convertibility

Since the early 2000s, the IRR exchange rate has fluctuated between 1,700 IRR to one U.S. dollar (USD) to as high as 43,000 IRR to one U.S. dollar.

The rial, however, is not easily exchanged for U.S. dollars. Relations between the two nations are frosty, with the U.S. applying decades-long economic sanctions and trade restrictions against the Islamic Republic of Iran, mainly as a way to punish the country for its nuclear ambitions and history of state sponsorship of terror groups.

Price controls, subsidies, and other rigid government policies also weigh down the economy, and corruption is widespread. This often makes the IRR a non-convertible (inconvertible) currency, which is any nation's legal tender that is not freely traded on the global foreign exchange market.

For offshore investors seeking to engage in trade with nations such as Iran that have non-convertible currencies, they must do so through the use of a financial instrument known as a non-deliverable forward (NDF). A NDF has no physical exchange in the local currency. Rather the net of the cash flows is settled in a convertible currency, usually the U.S. dollar, which gets around the non-convertibility of the domestic currency. NDFs are cash-settled and usually structured as short-term forward currency contracts.