The free market is once again free to sell market dollars at whatever the market will bear.
The change was announced by the Central Bank March 18, the day before the country went on holiday for the two-week-long Now Ruz celebration. In that brief period of a few hours of free trade, the dollar hovered around 19,000 rials or 55 percent above the official exchange rate of 12,260 rials per dollar.
That rate was set January 26, when the Central Bank devalued the rial by 8.5 percent and locked its new price to the dollar, an odd decision in a regime that has been saying for years that the dollar is a dead currency.
Most economists say governments cannot maintain an official price for long when it is so far off from the free market rate. What’s more, such a gap normally promotes a flight of capital from a country.
The Central Bank posted a policy statement saying, “Licensed exchange houses are given permission to buy and sell foreign currencies and answer customers’ needs based on the mechanism of the market’s supply and demand.” The only requirement was that the exchange houses record and report the rates at which they bought and sold foreign currencies, a normal requirement around the world.
It was believed that Central Bank Governor Mahmud Bahmani had long sought the re-opening of the free market, but had faced opposition from within the Ahmadi-nejad Administration. A few days before the change was announced, Bahmani was quoted as saying it was essential that currency prices be “real.”
The government had been using coercion since January to try to prop up the price of the rial, threatening and reportedly arresting exchange merchants who ignored the official price.
Even with the change, Bloom–berg reported that some exchange houses limited the volume of foreign currency they would sell any one customer. That suggested the dollar and other currencies could rise in price after the Now Ruz holiday.