Iran Daily: Currency Crisis — Government Declares New Foreign Exchange Market

An Iranian man holds US $100 bills at a currency exchange office in a shopping centrer in Tehran, April 10, 2018 (Atta Kenare/AFP)

UPDATE, 1430 GMT: Protests are reported across Iran in the cities of Isfahan, Shiraz, Mashhad, Karaj, Sari, Bandar Abbas, and Ahvaz.

From Isfahan:

Karaj:

Shiraz:

Security forces in Mashhad:

Najafabad:


The Rouhani Government has declared plans to create a “secondary foreign currency market”, hoping to halt the dramatic fall in the value of Iran’s rial.

The Islamic Republic’s currency, already at a historic low, fell almost 35% against the US dollar on Sunday and Monday. Although it made a limited recovery on Tuesday, it is now at 10,700:1 v. the dollar — compared to 45,000:1 in January.

The devaluation, leading to surging prices and limited production and imports of essential goods, has brought a surge in ongoing protests. Hundreds of people gathered in cities such as Isfahan, Shiraz, Karaj, and Rasht this week, condemining inflation and unemployment with chants such as “Incompetent officials, resign, resign”, “Death to the dictator”, and “People beg while the Leader reigns”.

On Tuesday, the Revolutionary Guards warned President Hassan Rouhani to deal with the crisis or face consequences. Yesterday more than 80 MPs tabled a motion giving Rouhani 30 days to appear before Parliament and answer questions.

See Iran Daily, August 1: Revolutionary Guards Warn President Rouhani Over Currency Crisis

A Vague Plan

Details of the Government plan for a “floating mechanism” are vague. The Central Bank will not set its own official rates but will peg the value of the rial to “actual trading rates”.

That appears to be an abandonment of the unified official rate, set at 42,000:1 by Bank this spring in a failed attempt to check the devaluation. Instead, Iran will return to a two-rate system: the 42,000:1 rate for importers of essential goods, and the shifting open-market rate for all other purchasers.

To try and limit the open-market rate, “major exporters of non-oil products” will have to sell their dollar earning in the secondary market. If this is not successful, travellers may face a 50% cut in the foreign currency that they can buy at the official rate of 42,000:1. .

Without any supporting evidence, Iranian State media proclaims that this will stabilize rates at 80,000:1 to 85,000:1.

Previous Government attempts to prop up the rial have been unsuccessful, leading only to shortages of foreign currency and the closure of some exchange offices.

The Iranian currency has been sliding this year both because of internal problems and ongoing US sanctions. The devaluation accelerated after Donald Trump’s May 8 order of American withdrawal from the 2015 nuclear deal and an expansion of the sanctions, with the threat of punishment of any foreign company with US links which trades with Iran after November 4.

Related Posts

Scott Lucas is Professor of International Politics at the University of Birmingham and editor-in-chief of EA WorldView. He is a specialist in US and British foreign policy and international relations, especially the Middle East and Iran. Formerly he worked as a journalist in the US, writing for newspapers including the Guardian and The Independent and was an essayist for The New Statesman before he founded EA WorldView in November 2008.

LEAVE A REPLY

Please enter your comment!
Please enter your name here