Tuesday, although at a new exchange rate 5 percent worse then before.
It appears that the public was becoming suspicious that sanctions were going to take a heavy toll of their wealth and late last month began buying up dollars and gold as a safe refuge. Despite the government’s frequent verbal attacks on the dollar—or perhaps because of them—the Iranian public continues to see the dollar as a currency of real value, unlike the rial.
In the past, it has been Central Bank policy to flood the market with dollars in such cases and dampen fears that dollars were not available.
For some reason, the banks apparently failed to make enough dollars available to the street side dealers starting Monday, September 27. But some dealers who had currency reportedly closed up shop and decided to sit on their funds, assuming they could get a much better price in a few days.
That set off what can only be called a panic. The dollar was going for about 10,250 rials on September 26, but surged to as much as 12,500 rials on September 29, a 22 percent lurch in just 72 hours.
The Central Bank shuffled and fumbled, shoving down its official published daily price to 10,200 rials per dollar while holding back dollars and watching the street price soar. Then it took the only route available to it—that is, flooding the market with dollars, using high supply to fulfill high demand and dampen the price.
Finally the street price began coming down and was around 10,800 Tuesday, 500 rials up from a week previously.
Long queues were seen on Tuesday outside several banks and official foreign exchange houses as dollars became freely available again.
Some economists said the greenback’s scarcity was an indication the latest international sanctions against Iran for refusing to stop its controversial uranium enrichment work were beginning to hit the country.
They pointed in particular to the fact that Dubai, Tehran’s main trading partner, had stopped money transfers there since August after similar decisions by the United States and European Union.
But others said the government should not have any problem getting access to the relatively small volume of dollars needed to carry the cash market.
Some thought the government was behind the crisis. One dealer saw it as the government’s attempt to counteract the effect of sanctions. “We do not have access to the outside world as we have difficulty in transferring money outside because of sanctions. This [selling of US dollar] is the [government’s] way of battling the sanctions,” he told Agence France Presse.
But the government has invested huge sums over the last few years to tamp down demand for the dollar and keep the rial fairly stable. The government wants a stable price for the dollar as evidence that it is a good economic manager. It is therefore difficult to credit theories that the government would have prompted the sell-off and embarrassed itself.
President Ahmadi-nejad said the volatility in the foreign exchange market was an attempt to hit the Islamic Republic’s foreign trade. “Some people tried to disrupt the exchange market through a propaganda campaign, so that the import and export sectors are hit,” he said in a speech in the northern Golestan province, adding the move would fail as “Iran’s foreign exchange reserves were spectacular.”
Another dealer predicted the price of the greenback would continue to fall. “With measures taken by the government, the rate of the dollar will drop every day,” said the dealer, who declined to be named.
Central Bank Governor Mahmud Bahmani said last Thursday that he intends to bring dollar rate down to 10,600 rials by around October 8. Bahmani said Iran has “increased its reserves” and would continue selling gold coins and foreign currency to professionals.
The government tried to put the best light on the tumbling rial. For example, the regime’s English-language media outlet, PressTV, headlined a story Tuesday, “US dollar falls against Iranian rial.” That was true versus the preceding few days—but was a gross distortion of the rial’s overall downward trend.
The rial fared even worse versus the euro, going from 13,600 rials per euro before the crisis to 14,545 rials on Tuesday, a loss of value of 7 percent.
The dollar rose against the euro for the first half of this year, but since June 7 the euro has been gaining value against the dollar, accounting for the rial’s worse position against the euro.
The Central Bank sells dollars to the commercial banks, which is turn sell dollars to 300 licensed private dealers in Tehran and 200 elsewhere around the country.
The Iranian Students News Agency (ISNA) said Bank Melli received $5 million from the Central Bank Sunday and ran out before noon, showing the extent of the run for dollars. The banks can buy unlimited quantities of dollars from the Central Bank, ISNA said, but prefer to buy it in daily bites because the long-term trend has been downward for three decades and they won’t like to have a hangover at the end of the day. The Central Bank sets the official price daily.