The free currency market ceased to exist in Iran as of October 2. That day, the currency was quoted at 35,800 rials per dollar at the close of business by the Mesghal website that tracks exchange rates.
The next day, under official coercion, Mesghal and other similar sites went blank for two days, then posted a valuation of 28,500 rials per dollar. That number remained unchanged until October 8 when Mesghal stopped posting any foreign exchange prices. Mesghal has been mute ever since then. Other websites like Mazanex and DataLine have also ceased posting dollar rates.
There is talk of rates ranging from 30,000 rials to 40,000 rials per dollar. But there is no market on which to determine rates. These are all just numbers plucked out of the ether.
Licensed dealers are told to sell dollars for 28,500 rials. But most dealers do not bother to post rates outside the shops. And those that do generally tell customers they have no dollars for sale. The dealers are unwilling to lose money by selling at the officially sanctioned rate and unwilling to risk arrest by selling at higher rates. The result is stagnation.
On the black market, which the police are trying to suppress, wildly varying figures are quoted.
The bottom line is that there is no free market on which to set a price and thus there is no real price at this time.
The real question is not, “What is the price of the dollar in rials?” but rather, “When will there be a free market to determine the price?”
The fear is that a free market would declare the rial worthless and set off hyperinflation such as Germany suffered in the 1920s and Zimbabwe in recent years—with bread selling not for thousands of rials but for millions.
But Mohammad-Ali Shabani, a political analyst living on London, thought the government would avoid that by crushing the free market in currency. “The end result will be the government taking over currency trading, squeezing out the private traders or forcing them to bow to the government for patronage,” he told Reuters. “This will give the government leverage as it prepares for tighter sanctions in the next 20 months.”
Many suspect the government lacks the foreign exchange needed to support the rial. On Friday, Finance Minister Shamseddin Hossaini assured the public that Iran’s foreign exchange reserves were in a “good position.” While Hossaini was trying to be reassuring, he failed to give any numbers, which was hardly reassuring.
“When it comes to reserves, actually we are in a good position,” he told reporters at a meeting in Tokyo of the International Monetary Fund. Last December, the IMF said Iran had $106 billion in reserves. But it has not undated that number.
Hossaini said, “We are having some problems transferring hard currency, and this is putting pressure on our currency market.” This was an admission that US banking restrictions and Europe’s order to Belgium-based SWIFT to cease handling any Iranian transactions was having an impact. But Hossaini failed to say how much foreign currency was under Iranian control and how much was locked up elsewhere.
Meanwhile, Majlis Deputy Arsalan Fathipur, chairman of the Majlis Economic Committee, told reporters $5 billion in counterfeit US dollars were floating around Iran. That appeared to be an effort to depress interest in buying dollars. His number would amount to $67 in counterfeit dollars for every Iranian man, woman and child.
The Foreign Exchange Center is selling a limited volume of dollars to importers for 25,550 rials per dollar. Originally, the FEC rate was decreed to be set each morning at 2 percent below the free market rate. But now it is just another arbitrary figure bearing no relationship to any market.
There is also the official rate of 12,260 rials per dollar available only for imports of basic foods and medicines.
There is fear of mass corruption with people who have “connections” setting up phony import-export firms and being allowed to buy dollars at such low rates.
Many in Iran have blamed President Ahmadi-nejad for inept economic policies. He is also blamed for being a spendthrift, funding construction projects all over the country with the petrodollars that began to pour into Iran as oil prices surged coincidental with his 2005 election.
Many say Ahmadi-nejad has committed the same error the Shah committed after the 1973 jump in oil prices led him to spend with abandon. The Shah’s spendthrift ways disrupted the economy and set off a surge in inflation that helped feed the public anger that produced the 1979 revolution.