Iran heading for hyperinflation: Steve Hanke

Oct 04, 2012 (LBO) – Iran is heading for hyperinflation with a collapsing Riyal driving up prices above a 50 percent a month threshold, as US led economic sanctions hurt state revenues, a top monetary economist has said. Hanke says the black market and official exchange rates began to diverge after July 2010 when President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act against Iran.

“This decline began to accelerate last month, when Iranians witnessed a dramatic 9.65% drop in the value of the Riyal, over the course of a single weekend (8-10 September 2012),” Hanke writes.

“The free-fall has continued since then.”

On October 92, the black-market exchange rate had reached 35,000 Riyals to the US dollar, a 65 percent decline in the currency.

There have been protests in Iran over the sharp fall of the currency.

A country usually heads into hyperinflation when a central bank monetizes large volumes of debt (prints money by purchasing government securities) to maintain state spending when tax revenues fall, especially in times of war to maintain military expenses.

When hyperinflation takes holds for several months accelerating prices push up the costs of runnin