Because the government has been sitting harshly on the open market, a true exchange rate was impossible to fix. The government is arresting streetside dealers, throttling licensed dealers and interfering with websites that report open market transactions. In reality, there is no open market any more. With that qualification, prices around 18,000 rials to the dollar were being reported Tuesday, about 1,000 rials higher than a week earlier.
The Central Bank set a price of 12,260 rials to the dollar on January 28. It has stuck firmly by that price ever since, publishing the same figure every morning and saying that’s the way things will remain. The two dozen other currencies priced by the Central Bank shift every day, however, essentially being adjusted to reflect their shifts against the dollar.
The oddity is that the Islamic Republic has now effectively locked its currency to the dollar—or is at least trying to. Thus, it has recognized the US dollar as the central currency of international commerce, something President Ahmadi-nejad has ridiculed repeatedly for the past four years. For all practical purposes, the Central Bank has told Ahmadi-nejad he got it all wrong.
Ahmadi-nejad learned he was all wrong on another front two weeks ago when he rescinded his order for the Central Bank to hold interest rates on savings accounts to 15 percent and less, well below inflation, which has now topped 20 percent. New interest rates went effect January 28, allowing payments of up to 20 percent, still below the inflation rate.
But news reports said banks are flouting the Central Bank and paying up to 23 percent. When institutions ignore state orders like that, it is a sign of fraying government authority. This happens fairly frequently in Iran, both under the monarchy and the Islamic Republic. Usually, the government manages to reassert authority, but sometimes, as in 1979, the fraying speeds up and undermines the regime.
The Oil Ministry has been unable to sell many bonds to raise capital for oil and gas projects. It has been limited to offering 17 percent. New bonds went on sale Saturday at 20 percent. It is not yet known if they are selling.
The Central Bank is trying several ways to exert control over the market. For example, banks have been set up at the country’s international airports. Travelers leaving the country can still buy $1,000 in US currency—but they must do it at the airport banks after they have checked in their bags and passed through the exit gate. They can no longer buy dollars in the city and sell them before they leave.
The Central Bank has also decreed that all government foreign exchange transactions must now be processed electronically. It will not allow government employees to get their hands on foreign cash.
The open market rate is running almost 50 percent higher than the official rate. Economists do not generally consider such a spread to be sustainable in the long run. But the regime has made clear it intends to try.
Meanwhile, Majid Ansari, a senior liberal political figure and member of the Expediency Council, told the Mehr news agency last week, “I assure you that even if the sanctions were lifted tomorrow or if there were no sanctions in effect, the government’s general economic policy would have led us to today’s point anyway.” In other words, he was saying it’s all Ahmadi-nejad’s fault.