May 26, 2018
The government has effectively shut down the licensed money changers for now. Foreign currency is available on a limited basis from a handful of government outlets at the new official rate of 42,000 rials to the dollar and from black market dealers on the streets, where the price has been as high as 67,800 rials to the dollar over the past month but has settled down in the 62,000 to 64,000 range in recent days.
For all practical purposes, the regime is trying to set the foreign exchange rate by decree—something that has been tried many times around the world and has never worked. But the decree will have an impact. Steve Hanke, an economist at Johns Hopkins University in Baltimore, told Radio Farda, “The currency crisis will not stimulate exports and it will not stimulate domestic production either. The weak rial will be associated with higher interest rates and more inflation.”
Foreign exchange dealers are still allowed to operate. But few are doing so since they cannot make money by selling dollars (or other currencies) at the new official rate.
In his one comment on the currency issue, Supreme Leader Ali Khamenehi said April 18, “The footprints of foreign intelligence services are evident.” Khamenehi’s standard response to problems befalling the Islamic Republic is to blame foreign agents.
At the Majlis, however, 160 deputies or 55 percent of the membership signed a letter calling on President Rohani to fire Central Bank Governor Valiollah Seif for causing the crisis with mismanagement. They didn’t seem to believe the Supreme Leader.
There is no sign of a clear policy from the government. Every few days, the Central Bank announces some new piece of a foreign exchange policy. But the government does not appear to know where it is going or what a long-term policy will be—or can be.
The rial closed out 2017 selling for 41,981 to the dollar on December 31. As of Thursday, May 24, it was selling for 63,800 to the dollar on the black market, a loss of 52 percent in value over less than five months.
Officially, the government “unified” the two exchange rates April 9. It raised the “official” rate from around 37,000 rials to 42,000. And it reduced the “free market” rate from around 50,000 rials to 42,000. But the official rate is available to very few buyers. And a government cannot set a free market rate. The result is that a black market has emerged. So Iran is actually still on a two-tiered exchange system—the official rate and the black market rate.
But the regime doesn’t want the black market. Tehran prosecutor Abbas Jafari-Dolatabadi said May 15 the Judiciary had arrested 180 people on charges of violating the foreign exchange rules—in other words, selling at other than the official rate.
The effort to suppress the black market has forced dealers off the streets and into alleyways. But it hasn’t stopped the black market.
As for the new rules, the government has announced that 33 categories of people and institutions are eligible to receive foreign exchange at the official rate. That, by definition, means most Iranians cannot get foreign currency legally.
The new rules will allow travelers going abroad to buy up to 500 euros ($590) at the official rate if they are going to the states of the former Soviet Union or 1,000 euros ($1,180) for all other countries. If travelers want more, they must resort to the black market or buy in the country they are visiting, where the price is likely to conform to the Tehran black market.
The new rules also forbid any Iranian from holding the equivalent of 10,000 euros ($11,800) in foreign cash. Anyone with more cash than the ceiling must either deposit the money in a bank or sell it to the banking system for rials.
The government has also ordered all exporters to repatriate 95 percent of the foreign exchange earnings they are not using to finance imports. That rule irks most traders who prefer to keep their money safely abroad.
The government has not announced how much foreign exchange it will be providing to citizens in the future. (It announced May 12 how much it made available in the month prior to May 8.) But there is near universal complaint that it isn’t enough. Many businessmen are saying publicly they simply cannot buy all the foreign exchange they need from the official sales sites.
Many others say the government is not providing all the foreign exchange needed to import the food and medicines that Iran needs to buy abroad. Almost eight years ago, the Ahmadi-nejad Administration caused a crisis by not providing the Health Ministry the foreign exchange it needed to buy foreign medicines. The Ahmadi-nejad Administration instead blamed US sanctions for the medical shortage, although the sanctions then (and now) exempted medicine and medical equipment from the trade ban.
The Sanarate website which published hourly free market exchange rates has been silent since April 9. That was the source for the chart published on the Economy page of the Iran Times. The website bonbast.ir now publishes a daily list of foreign currency exchange rates on the black market. That is the source the Iran Times is now using for its chart.
The Central Bank said it will allow the official rate to fluctate as much as 6 percent between now and Now Ruz. It kept the rate fixed at 42,000 to the dollar from April 9 through May 20. Then it started hiking the rate modestly each day—to 42,050 May 21, 42,060 May 22, 42,080 May 23 and 42,090 May 24.
Meanwhile, the Fars news agency quoted a Central Bank official as saying Iran will now use Qatar, instead of Dubai, to handle payment orders in foreign currencies. He said new restrictions imposed by the UAE government make transacting business there difficult.
