July 19, 2019
Iranian politicians of all political stripes have appeared
eager for a decade to scrap the dollar, with most preferring to rely on the euro, the yen and the yuan for international transactions. But the Majlis Research Center (MRC) has come forward now to say that is a bad idea that might further hurt the Iranian economy.
The report said such an action would actually serve to make US sanctions more punishing for Iran rather than less.
In an analytical report on the costs and benefits of draft legislation outlawing the US dollar, the MRC said that, while the dollar holds only a small share in Iran’s foreign exchange market, it is still the dominant currency globally and a credible unit for converting other currencies.
The report said that outlawing the dollar would “certainly be harmful and create major problems for the forex market.”
The research office said the market volatility caused by dumping the dollar would extend to other markets, such as gold, housing and autos, adding to the economic turmoil that afflicts Iran.
Banning the buck is uncalled for because it also would deprive the country of some trade opportunities “by imposing internal limits on foreign trade and adding to the existing overseas hurdles that local businesses are grappling with.”
The legislative staff experts said, “Dumping the dollar would expose the forex market to a variety of problems given the broad functions” of the global reserve currency. It would be in line with the US sanctions [and not against it].”
The bill is so far backed by more than 50 deputies, or more than one-sixth of the Majlis membership. It would outlaw “all transactions, both by the private sector and government, using the [US] dollar.”
It also says that after the law comes into force “the US dollar will be considered contraband,” which suggests that mere possession of a dollar bill could put the possessor in jail.
The MRC said Iran’s foreign trade is now dominated by the Chinese yuan, euro and the UAE dirham.
Since June of last year, sales of foreign exchange on NIMA, the official exchange were importers are told to buy their foreign exchange, shows the dirham accounted for 28.11 percent of the currency sold followed by the yuan at 26.32 percent and the euro at 26.27 percent. The US dollar accounted for 10.15 percent of the traded currencies—though that is probably far greater than many in Iran would expect given the regime’s furious campaign against the dollar—and the fact that US law does not allow Iran to deal in the dollar.
For example, the Trade Ministry in March 2018 banned all import orders based on the US currency to encourage non-dollar trade.
The MRC report doesn’t endorse dollar trade, but argues that future measures to promote non-dollar trade should be pursued by means other than a crude ban. The report lauds the part of the bill that obliges the Foreign Ministry to use “economic diplomacy” to promote non-dollar transactions across the globe.