Iran’s rial rebounds but problems far from over

Young journalists club

News ID: 32111
Iran » Iran
Publish Date: 16:18 - 28 November 2018
TEHRAN, November 28 -The Iranian rial is gaining some respite from its record losses against the dollar after the country had to take drastic measures to arrest the national currency’s downward spiral.

Iran’s rial rebounds but problems far from overTEHRAN, Young Journalists Club (YJC) -The Iranian rial is gaining some respite from its record losses against the dollar after the country had to take drastic measures to arrest the national currency’s downward spiral.

The dollar was being offered at 119,000 rials on the unofficial market Tuesday and Wednesday, compared to 120,000 rials earlier on Monday, Iranian news agencies reported.

The Tasnim news agency attributed the recovery to new forex policies and restrictions on banking transactions and purchases of dollars as well as a ban on money sent-outs by unauthorized foreign exchange shops.

Dealers were quoted as saying that the number of dollar sellers has grown vastly in recent days, driving down its value fast.

On Tehran’s Ferdowsi Street where exchange houses have mushroomed in recent years, each dollar was cited at 119,000 rials on Tuesday, while a gold coin dropped to 38 million rials from 40 million rials in recent weeks.

Central Bank governor Abdulnaser Hemmati on Wednesday signaled that the rial will continue to strengthen as he advised against savings in foreign currencies by the public.

“I have already advised my fellow Iranians not to invest in foreign exchange as assets. Those speculating in foreign exchange will likely be making losses but my advice is to ordinary people not to enter this sector,” he said.

Iran’s currency began to slump last December when the government cut interest rates on saving bank accounts.

What initially appeared to be a controlled depreciation of the rial in a bid to boost local production and exports got out of hand later when the US announced pulling out of a 2015 nuclear deal with Iran and reimposing sanctions on Tehran.  

The government’s later measures, including capping the official rate at around 45,000 rials to the dollar, exacerbated the slump because this was only available for a small group of importers and businesses.

As a result, most Iranians had to turn to unofficial foreign exchange traders, which generated an underground network of forex sellers who stoked further depreciation of the rial.

That came when some families, mostly homemakers, began to convert their savings into dollars and euros amid fears of an economic downturn or as an investment in the hope of reaping gains from further drop in the rial.

Role of messaging apps 

Those fears were mostly stoked and tended by social media networks, mostly messaging applications.

US news magazine Foreign Policy, founded by prominent political scientist Samuel Huntington, wrote last week that most speculators were using the messaging app Telegram to spread fake news about the rial.

Prior to the US withdrawal from the nuclear deal, one US dollar was trading at 37,000 rials but immediately afterwards, it jumped to around 44,000 rials.   

According to the US publication, the deliberate circulation of rumors and fake news on Telegram by currency traders and middlemen pushed the rial down to 50,000 to the dollar, and then 80,000 rials, and then 190,000.

That happened when some middle-class and wealthy families felt a temptation to engage in currency trading in the anticipation that the rial would soon decline after the United States reimposed sanctions.

Professional money traders took advantage of the situation to use Telegram to exploit the black market’s lack of transparency to maximize their own profits, at the expense of their clients.

“There has always been a gap between the more sophisticated currency traders and those driven by ignorance and fear, but the informal marketplace widened it,” Foreign Policy wrote.

The Iranian government doesn’t censor Telegram, specifically the news feeds on its “channel” function which allow posts to be distributed to anyone who chooses to sign up for them.

“When the rial entered its ominous trajectory, currency traders began creating hundreds of channels on Telegram, instantly announcing any shifts in the dollar price and offering broader market and purchasing advice for the coming days,” FP said.

Those channels attracted a massive army of followers, with some feeds counting in excess of 2 million members, who have themselves become a force capable of influencing the currency exchange rate.

Internal problems 

Nevertheless, other factors are also involved, most importantly internal problems which have been plaguing Iran’s economy, rooted in the time of the former Shah.

The biggest liability of Iran’s economy is its reliance on oil revenues which are extremely vulnerable to market fluctuations and inviting economic sanctions.

Historically, Iran’s economy is saddled with high inflation. That became evident when a flush of oil revenues of up to $700 billion during the tenure of former President Mahmoud Ahmadinejad spawned an inflation rate of about 40 percent.

As a result, not only did the unprecedented oil income not improve the living situation of most Iranians, but also reduced many families to penury.

It is no surprise that the Iranian rial has lost value through all governments. That has come even as war-torn countries such as Iraq and Syria have not experienced inflation rates and currency fluctuations as much as Iran.

According to Kamran Naderi, a professor of economics at Imam Sadeq University, a significant part of Iran’s problems is not linked to sanctions and internal weaknesses combined with annoying US sanctions make for a perfect storm.

“If these weaknesses did not exist, the sanctions would never be so much effective,” he told Tasnim news agency.

“Sanctions are like a microbe which is effective where there is an ulcer. They mount on the abscess and knock down the body, but if the body is resistant and unlacerated, it can never hurt,” he said.

Naderi cited inflation as one of the problems which is fed by liquidity being piled in exponentially without taking production and value added (real GDP per capita) rates into account.

Another problem is the lack of the central bank’s independence, the economist said.

“In all administrations, financial policies have dominated monetary policies, as a result of which monetary policies have been influenced by financial exigencies of the governments,” he added.

Source: presstv

Tags
Your Comment