Iran
set to introduce second official currency
26
October, 2012
Direct look at why Iran
wants to introduce a second currency exchange rate for imports, and
what this means for the country.
The
Central Bank of Iran is planning to introduce a 2nd official currency
exchange rate for imports, Mehr news agency has recently reported.
The new measure, which should be implemented within the next few
weeks, has been approved by the government.
But
why is this change necessary? Well, the new currency will aim to
bring back stability to the volatile Iranian market. Earlier this
month, the Iran rial plunged significantly against the US dollar in
open market trade on Monday.
On
Thursday 4th October, Currencies Direct revealed that the rial was
trading at 34,200 for every $1, which was down from about 29,720 on
Sunday 30th September. It was even trading at 24,600 during the
previous week.
The
currency's freefall has intensified the burdens on Iran's economy, as
it is currently struggling with tough sanctions targeting oil exports
and measures that are blocking it from key international banking
networks. These sanctions were imposed upon Iran due to the country's
continued development of its nuclear program.
But
many accept that Western sanctions are not the only reason for the
rial's sharp decline. Some have begun to blame governmental policies,
such as fuelling inflation by increasing money supply while also
artificially holding down inflation rates. This has encouraged many
native Iranians to exchange their rials for foreign currency, as it
is more likely to hold its value.
This
economic unrest has led to riots in Tehran's main bazaar among the
disillusioned merchant classes. The decreasing value of the rial and
the rising prices has not only made staples, such as lamb and
chicken, out of the reach of many low-income Iranians, but imports
are also diminishing due to the poor exchange rates.
So
while it may be difficult to tell at the moment, Currencies Direct
will be paying attention to the developments in Iran to see whether
the second currency exchange rate will benefit the ailing country.
Iran’s
currency traders forced underground
FT,
26
October, 2012
Ahmad
paces the street by his shuttered shop in Tehran, waiting for
customers to call him on his mobile phone.
For
20 years, he has operated a small currency exchange in the downtown
area of Iran’s capital. But earlier this month, state authorities
sealed off his shop as part of a wider attempt to counter the sharp
fall in the rial.
The
45-year-old now operates in secret, his daily trade slowed to a
trickle. He is constantly alert to an impromptu visit by the police.
“You can’t buy millions of dollars any more, but you can still
purchase about $100,000,” he says.
Like
many other currency traders, Ahmad’s business is a victim of
high-stakes geopolitics as much as domestic economic mismanagement.
That combination led to the plunge in the value of the rial this
month, and drove the police to close down most currency exchanges.
Ahmad is lucky that he has not been arrested.
The
move by the authorities curbed market fluctuations and has helped the
central bank to limit the foreign exchange market to about two dozen
currency exchange shops in Tehran.
These
operate under central bank licence and sell only limited amounts of
hard currencies at rates just below the black market.
One
US dollar now buys about 31,000 rials on the black market and 30,000
in licensed shops, while the official rate remains at 12,260. Before
the crackdown, the rial was selling at about 40,000 on the open
market.
Ahmad,
who asked for his real name not to be used, says he knows of at least
50 other traders who have faced closure in the main centre of the
currency market on Ferdowsi and Jomhuri-Eslami streets in central
Tehran.
Like
him, however, many are still doing some business, and are sought
after by Iranian businessmen and ordinary people in need of hard
currency.
Ahmad
says the main reason behind the market crackdown is the international
campaign of sanctions on Iran, which is aimed at persuading Tehran to
curb its nuclear programme.
He
says the shortage of hard currency is due to shrinking oil revenues
following the EU oil embargo in force in July, as well as mounting
obstacles to the transfer of foreign exchange income into the country
because of US banking sanctions.
“When
the police intervene,” he says, “it means there is shortage of
hard currency and the market has got out of control.”
Ahmad
also blames domestic factors for exacerbating the currency problems.
He points to “some political hands in the market”, which exploit
the sanctions and engineer deliberate depreciation of the national
currency to boost their rial income.
Iran’s
currency troubles have accentuated tensions between President Mahmoud
Ahmadi-Nejad and a generally hostile parliament.
Iran
rial
Mr
Ahmadi-Nejad has accused speculators of being behind the rial’s
sharp decline.
Iran’s
parliamentarians, however, have accused the government of not only
failing to curb the currency market but also of selling hard currency
at higher rates in order to fund its populist policies.
Iran’s
parliament this week revised the budget law to prevent any such
exploitation and banned the government from using the differences
between official and market currency rates to meet its rial
expenditures. The government denies the allegations.
Despite
the unprecedented economic pressure, the Islamic regime insists the
country is still able to withstand sanctions and will not halt its
nuclear programme under any condition.
“As
long as the [political and economic] conditions remain like this and
sanctions continue, we will not be allowed to open our shops,” says
Ahmad. “It is not possible to go back to normality in the
foreseeable future.”
The
risks associated with transactions to overseas recipients – whether
businessmen or relatives – have also increased sharply, he says,
because many currency dealers outside the country who are linked to
Tehran dealers have gone bankrupt due to rial fluctuations.
“They
do not admit bankruptcy, but we know that is why some big
transactions disappear.”
Despite
the risks, Ahmad still uses hawala – an old financial transfer
system. It relies on trusted intermediaries to skip the conventional
banking system, through which no money can be transferred due to
sanctions. He sends his hawalas to Turkey, which he thinks is a safer
route than Dubai where, he says, an increasing number of transactions
are going missing.
Ahmad
says demands for hawala have decreased amid the deteriorating
economy. The fall in the purchasing power of many families means they
are less able to travel abroad or support their children's’
education overseas.
“Many
families who used to buy hard currencies from us now tell their
children to either come back from Malaysia, Australia and Europe or
earn your own money if you wish to stay,” he says.
“A
family which used to transfer £5,000 once in a while now can send
£1,000, or a family which used to buy [Malaysia’s] ringgit at
2,200 rials cannot afford ringgit at 12,000 rials now.”
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video and original article GO
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