Tough new measures by the Central Bank of Iran (CBI) have largely failed to revive the value of the Iranian rial over the past week, based on open market exchange rates.
On April 10, the government imposed a rate of IR42,000 to the US dollar and said anyone exchanging currency at a different rate was liable to prosecution. At the time the dollar was trading at IR61,000 on the open market, down 22% since the start of the month and down 30% since the start of 2018.
While banks have little choice but to comply, an unofficial rate is still being quoted by some sources and they continue to put the Iranian currency’s value far lower than the new official rate. According to Bonbast.com, the rial did gain some ground against the dollar soon after the government’s decision, with an exchange rate of IR55,000 quoted for April 12. Since then, however, it has begun to lose ground once more, with the rate rising to IR56,500 by April 17.
There has been a similar pattern evident in the exchange rate of the rial against other major currencies, including the euro, British pound and Swiss franc. All three currencies rose sharply against the rial around the time of the restrictions being imposed on dollar trading and while they settled back in the following days, all are still trading at a higher value to the rial than before the dollar restrictions were brought in.
Perhaps more worrying is the threat of currency shortages. The government tried to assure people that this wouldn’t happen – with first vice president Es’haq Jahangiri saying on April 9 that “the required currency for all sectors will be supplied by the Central Bank of Iran, bureaux de change and banks under the control of the CBI. Businesspeople and people mustn’t have any concerns for purchasing their required currency with this exchange rate.”
However, there have been reports of what looks suspiciously like the early signs of currency shortages, as banks and bureaux de change baulk at the idea of selling dollars at an uneconomic rate. According to Reuters, the majority of private money changers in Tehran have not bought or sold dollars or other foreign currencies for several days as they wait for the government’s next move.
The situation is one that Iran’s opponents appear keen to exploit as a way of criticising the authorities in Tehran. The US-funded Farda Radio – which broadcasts in Farsi but is blocked in Iran – reports there are only six Iranian airports where banks are willing to sell foreign currency at the official rates and passengers at other airports and border crossings are unable to change money. It has claimed that, even where an exchange can be made, passengers are being limited to buying between €500 and €1,000.
Access to foreign currency has been restricted fairly widely. The CBI has ordered that bureaux de change can no longer buy and sell hard currency at will; instead they are only allowed to transfer foreign currency received from CBI-certified banks to specific groups, including patients travelling overseas for medical treatment. However, Valiollah Seif, governor of the CBI, has denied that his organisation wants to shut down the exchange bureaux.
The turmoil in the currency markets and the impact of the government’s foreign exchange restrictions threaten to undermine the health of the wider Iranian economy. Importers and exporters will find it harder to trade without easy access to foreign currency and the lower value of the rial is likely to feed through into higher prices. There have been suggestions by some commentators that more Iranians could migrate to bitcoin and other crypto currencies in response to the market restrictions.
It is geopolitics rather than economic fundamentals that have driven down the value of the Iranian currency, according to commentators. Most point to the threat of a new wave of sanctions being imposed on Iran by US President Donald Trump as the main reason for the currency woes.
Trump’s tough rhetoric is unlikely to be dialled down anytime soon. He has set a deadline of May 12 to decide whether the US should stick with the nuclear deal signed in 2015 and implemented in early 2016. Under that deal – formally known as the Joint Comprehensive Plan of Action – the US and others agreed to remove many of the sanctions imposed on Tehran in return for Iran scaling back its nuclear activities.
Trump’s deadline means there is unlikely to be much respite for Iranian currency traders and other businesses for another month, with the threat that things could get worse rather than better on May 12. “We expect the [rial] to stabilize, barring any escalation in the geopolitical environment – notably if the US does pull out of the nuclear deal,” said Mohamed Bardastani and Maya Senussi of Oxford Economics in a research note published on April 13.
Source » forbes