Geopolitics and rising inflation has seen Tehran ban the sale of foreign currency as it attempts to sure up the plummeting Iranian rial
The fall in value of the Iranian rial by a third this year has seen Tehran install a series of measures designed to mitigate further devaluation and limit the availability of foreign currency. According to several news sources, the latest of these measures is the banning of the sale of foreign currency from exchange shops across the country.
“The sale of foreign currency through the exchange shops is prohibited, so far,” Mohammad Ali Karimi, the head of public relations office at the Central Bank of Iran (CBI), told the Iranian IRIB news agency.
This move follows a limitation of the amount of foreign currency citizens can hold. Last week Tehran said any citizen holding more than €10,000 would be in breach of the law and face prosecution for “smuggling”.
Iran has suffered recently as the rial has lost a third of its value this year, having fallen significantly since 2013. Last week rials were trading at 61,000 to the dollar on the black market. Keen to sure up the currency the CBI has sought to provide importers with a new fixed rate of 42,000 rials to the dollar.
Speaking to The Financial Times, one Iranian banker told the paper: “These fluctuations [in the currency] are more psychological but will have serious economic consequences and further weaken people’s purchasing power. The currency market fluctuations will have a domino effect, pushing up inflation and damaging domestic production and job opportunities.”
The current geopolitical situation, compounded by the US’s opposition to Iran’s support for the al-Assad regime in Syria, has dented Iran’s economic prospects. This has led official to blame political agendas for the rial’s accelerated devaluation. “Our enemies are not sitting idle, either, by creating international crises to destabilise the economy. Non-economic factors . . . have fuelled the problems,” Valiollah Seif, the CBI’s governor told Iranian law makers.
The nuclear deal struck between the Western powers and Iran three years ago lifted crippling economic sanctions and allowed Iranian president Hassan Rouhani to reel in inflation to under 10%, down from 40%. US President Donald Trump has stated he might now pull out of the agreement – prompting fears of a return to high-inflation in Iran and putting a premium on foreign currency.
Gold, seen as the hedge against state manipulation of currency, may also be targeted. Radio Farda reported one source as claiming that exchange bureaus are only allowed to buy or sell gold coins “until further notice”.
Such moves have precedents. Venezuela’s Chavista government has long sought to manipulate exchange rates. The Venezuelan bolivar is currently trading at almost 50,000 to the dollar on the black market despite the state fixed rate pertaining to a rate of 10 to 1. In a move also designed to protect currency value, US President Franklin D Roosevelt controversially banned the hoarding of gold in 1933.
Image top: Portrait of the Ayatollah Ruhollah Musavi Khomeini depicted on an Iranian banknote.