Page 25 - IRANRptAug18

7.0 FX
Iran - FX
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Currency (units per EUR) (eop)
34,092
35,339
34,056
34,859
37,057
39,666
43,273
46,522
49,268
Currency (units per USD) (eop)
30,700
31,460
32,375
32,422
32,489
33,805
36,064
37,743
42,590
Iranian rial in free fall as jitters over US sanctions poison sentiment
Ample hard currency reserves?
Bread riots
With just a week to go until the first phase of heavy US sanctions snap back on Iran, the Iranian rial (IRR) plunged to a new low on July 29, hitting 112,000 to the dollar on the black market compared to the 98,000 seen the day before. That represented a 12.5% d/d decline and many observers could only conclude the currency is in free fall.
The official exchange rate—which is fixed by the state and is only available to hard currency buyers approved by the government—remained at 44,070, as against the 35,186 seen at the start of the year and prior to Donald Trump in early May imperilling Iran’s economy by withdrawing the US from the nuclear deal and announcing a strategy of forcing Tehran to renegotiate its role in the Middle East by crippling Iran’s economy.
The US sanctions due to take effect on August 6 will target Iran’s acquisition of dollars, trade in gold and precious metals, sale and transfer of various metals and materials, sovereign debt and the automotive sector. The second wave, to be reimposed on November 4, will, among other sectors, hit Iran’s exports of crude oil and petrochemicals, shipping business and energy industry. Secondary sanctions that will be aimed at foreign financial institutions that choose to continue doing business with Iran will also come into play.
Iran was reckoned to hold more than $132bn in hard currency reserves and $600mn in gold, local media reported in January. If there are ample reserves of hard currency in the Central Bank of Iran’s (CBI’s) vault, the implication might be that people should have nothing to worry about in terms of the rial’s stability. Indeed, data in the Central Intelligence Agency’s (CIA) December 2017 factbook edition can be said to back up that point. Iran has higher currency reserves than more than 156 other countries around the world including Norway, Australia and Turkey.
However, the speed of the devaluation of the spiralling IRR has taken Iranians by surprise and recriminations have flown over officials’ handling of the foreign currency exchange market since Trump turned up the heat on Iran. Angry traders have even taken to the streets and on July 25 central bank governor of five years Valiollah Seif was replaced by Abdolnasser Hemmati.
Seif is said to be the target of lawsuits that cite his allegedly inept handling of the rial’s precipitous fall. There has been much anger over how officials have gone about selecting those lucky enough to be given access to the official rial-to-the-dollar rate.
One reform-minded economist, Hossein Raghfar, has warned that the continued slide of the IRR “could lead to bread riots”. He noted, however, that they may be orchestrated by hostile groups outside the country. Raghfar also reportedly said that several decision makers in the ruling establishment, who have been at the helm of the country’s bureaucracy since the Islamic
25 IRAN Country Report August 2018 www.intellinews.com