Friday , 19 July 2024

Iran’s Foreign Currency Markets In Chaos Despite Central Bank Intervention

Radiofarda – One week after the Rouhani administration announced the government-imposed rate of 42,000 rials against every US dollar, chaos and ambiguity in Iran’s foreign exchange market continue.

In an attempt to control the free fall, the Rouhani administration announced an imposed rate of 42,000 rials to the U.S. dollar April 10, in addition to other protective measures.

Some street exchange bureaus are reportedly flouting the imposed rate, selling very limited amounts of dollars instead for 53,000-55,000 rials. Other exchange offices are closing down rather than break the new law by selling dollars for a higher rate than the mandated 42,000 rials.

The rate hit an all-time high of 61,000 rials to the dollar April 10.

A group of 63 MPs have called on Rouhani to fire Central Bank Governor Valiollah Seyf over the crisis.

While the rial has gradually weakened against the dollar since the Islamic Revolution in 1979, between late March and mid-April this year the national currency fell by 25 percent against the U.S. dollar amid worries about Iran’s economy.

At an April 16 meeting at the government’s economic headquarters just one day after the MPs demanded he be removed as Central Bank Governor, Seyf insisted the exchange rate would fluctuate only five to six percent per year “on the condition that the Central Bank’s policies are implemented.”

In the meantime, reports from Tehran say only banks at six Iranian airports can afford to sell foreign currency to passengers traveling abroad at the rate determined by the government. Banks at other airports and borders simply don’t have any foreign currency to sell.

Passengers lucky enough to be able to buy foreign currency at the airport are limited to 500 Euros per customer for those traveling to “near countries,” and 1,000 Euros for those traveling to “far countries.”

Head of Iran Central bank, Valiollah Seyf, undated.
Head of Iran Central bank, Valiollah Seyf, undated.
The new regulations also limit possession of foreign currency by individuals to 10,000 Euros.

Seyf told reporters in Tehran that these restrictions “might change depending on the circumstances and based on the resources and capabilities of the Central Bank.”

A decision on the allocation of additional foreign currency to travelers who leave the country more than once a year is to be made in other meetings, Seyf said.

Meanwhile, the Central Bank governor added that “a permanent committee has been set up at the Central Bank to deal with unforeseen situations in the foreign exchange market.”

After Seyf insinuated that smuggling and money laundering were to blame for the upheaval in foreign currency markets, Judiciary Chief Sadeq Amoli Larijani said “The judiciary, police, and intelligence officers will cooperate with the Central Bank in order to stabilize the foreign currency market.”

Following the new measures taken by the government, import and export activities came to a halt, but according to Iranian Students’ News Agency (ISNA), the processing of purchase orders in foreign currency resumed April 16.

However, Mohamad Farahani, the chairman of the Foodstuff Importers Union, told the Iranian Labor News Agency that problems concerning foreign currency transactions have put some importers on the verge of bankruptcy.

Economists have also questioned the efficiency of the new foreign currency regulations. Paris-based economist Fereidoun Khavand has described the new policy of imposed unification of exchange rates as“a very dangerous game.”

“The reasons behind the disruption of Iran’s exchange market are mainly the confrontational foreign policy of the Islamic Republic, uncertainty about the future of the Joint Comprehensive Plan of Action (JCPOA), and its probable abrogation by President Donald Trump’s administration,” Khavand said in an interview with Radio Farda, referring to Tehran’s nuclear deal with world powers.