5 Pahlavi – Iran

In 1960, Iran's currency situation was characterized by relative stability under the Pahlavi monarchy, but it existed within a framework of economic dependency and underlying structural vulnerabilities. The national currency, the rial, was pegged to the U.S. dollar at a fixed rate of approximately 75.75 rials per dollar, a regime established in 1955 with guidance from the International Monetary Fund (IMF). This peg provided a facade of strength and facilitated international trade, yet it was fundamentally supported by Iran's oil revenues, which constituted the vast majority of the country's foreign exchange earnings. The state's budget and monetary stability were therefore directly tethered to the volatile global oil market.

Economically, the period was one of state-led development driven by the oil boom, following the 1953 coup and the subsequent oil consortium agreement of 1954. While significant infrastructure projects and the beginnings of industrialization were funded by petrodollars, the economy suffered from persistent inflation, a growing trade deficit, and an overvalued rial that hurt non-oil exports. The fixed exchange rate masked these inflationary pressures, but it also made Iranian manufactured goods less competitive abroad and encouraged imports, draining foreign reserves. This created a fragile equilibrium where monetary policy was largely passive, reacting to the flow of oil income rather than actively managing domestic economic conditions.

The stability of 1960 proved short-lived. By the early 1960s, the pressures became unsustainable, leading to a major currency crisis. A combination of excessive government spending, a slowdown in oil revenue growth, and a sustained loss of foreign reserves forced the government to devalue the rial by nearly 50% in 1961. This devaluation was a stark admission that the fixed parity was untenable, marking the end of this period of apparent calm and exposing the deep-seated economic imbalances that would continue to challenge the Iranian state throughout the decade.