As protests across Iran reach beyond the control of President Masoud Pezeshkian’s government and the authority of Supreme leader Ali Hosseini Khamenei, another quieter but more damaging crisis has already done the damage. Long before the crowds filled the streets, Iran’s economy had begun to break down. Hyperinflation, shrinking incomes and a currency in free fall hollowed out everyday life, turning routine purchases into calculations of survival. What began as economic distress has now predictably shaken hands with political anger. And now by mid-January this year, after weeks of unrest and the reported killing of around 3,500 protesters, the trigger has become impossible to ignore as the Iranian rial’s collapse to historic lows, making any progress on the trade front nearly impossible.
The collapse of Iran’s currency is no longer a slow-burn crisis. By January 15, the Iranian rial had sunk to a valuation of around 1.45 million per US dollar on the open market, marking one of the sharpest currency depreciations in the country’s modern history. The fall has pushed prices of everyday goods beyond reach for large sections of the population.
Many media houses have run with the claims that the rial has gone to zero because the Iranian currency has lost over 97 per cent of its euro value since 2022. But while claims that the rial has “gone to zero” are misleading in a technical sense, the reality is that the currency indeed has suffered an extreme loss of purchasing power, rendering it effectively unusable outside Iran and deeply unstable at home.
Has the Iranian rial really ‘collapsed'?
The rial traded at about 430,000 to the dollar when the Central Bank governor took office in late 2022, but began accelerating downward in 2025. It started the year at roughly 817,500 rials per dollar, and eventually lost nearly 45 per cent of its value over 2025, hitting 1.42 million by December, triggering protests and the governor’s resignation on December 29.
Against the US dollar, the rial is trading near 1.65 million on the open market currently. And these are not symbolic figures because they determine import costs, food prices, and household survival.
However, analysts say that currencies do not formally fall to absolute zero as long as a state continues to function. Therefore, what Iran is experiencing is severe depreciation, not extinction.
Recognising the scale of the problem, Iran’s parliament approved a redenomination plan in October last year, proposing to remove four zeros from the rial. The change is scheduled over a two-year preparation period followed by a three-year transition in which old and new notes would circulate together. However, officials described it as an accounting reset and not a cure for
inflation or currency weakness.
Why did the rial lose value so rapidly?
So, what is behind the sudden collapse of the oil-producing nation’s currency? The current collapse is less the result of a single shock and more the result of multiple issues converging at once.
International sanctions have a major role to play in the currency’s downward trend. The US and other European nations have sharply limited Iran’s access to foreign currency, particularly oil revenues, by placing sanctions on the nation amid the continued fallout over the regime’s nuclear ambitions. Thus, with limited dollar inflows, the central bank has struggled to defend the rial or stabilise markets.
Consequently, inflation in Iran reached crisis levels, rising above 42 per cent year-on-year by December 2025. As prices surged, households and businesses rushed to convert rials into dollars, gold, or physical goods, accelerating the currency’s decline.
And due to the domino effect set by the above reasons, economic growth in Iran has stalled, with its GDP contracting by 1.7 per cent in 2025. This, in turn, reduced tax revenues and worsened fiscal stress, weakening the state’s ability to manage subsidies or intervene effectively in currency markets.
Policy changes decided in late 2025 intensified pressure on the currency overnight. When authorities required importers to buy foreign currency at open-market rates instead of subsidised ones, demand for dollars spiked immediately, increasing stress on the rial.
The brief 12-day war with Israel in June last year further accelerated the depreciation of the rial, which has lost about 40 per cent of its value since then. The aftermath of the conflict reinforced what many Iranians describe as a condition of “no war, no peace”, undermining confidence in economic recovery.
Gold prices, a traditional hedge against inflation in Iran, have surged, with coins hitting 1.7 billion rials, more than double pre-war with Israel last year levels.
The worsening economic crisis and inflation at home, coupled with socio-cultural tightening of the noose, created political unrest, which then fed back into the currency collapse. Protests and strikes added a risk premium, encouraging further capital flight.
How do the protests fit into the currency crisis?
The ongoing protests in Iran are not a parallel story; they are a consequence of the currency shock, which is itself a consequence of the troubling economic trends that had ensued for years under the pressure of geopolitical scrutiny.
The protests began on December 28, led by traders and shopkeepers angered by collapsing margins and price volatility. Then, electronic goods sellers shut stores in central Tehran, followed by strikes in the Grand Bazaar. As prices rose, crackdowns started, and that culminated in the protests spreading nationwide.
Several media reports indicate that there are more than 600 protests ongoing across all provinces, with thousands killed and thousands detained. Rising food prices, including staples such as dairy, have become flashpoints, while wages for many workers remain near $100 a month.
Thus, the waves of protests now confronting Iran’s leadership are not merely a reaction to repression or politics, but the cumulative fallout of an economy that failed first, with the collapse of the rial serving as the clearest measure of a system that turned unsustainable.
 "It now takes 1.65 million Iranian rials for $1. Here's why it crashed")
