Iran’s currency, the rial, lost some 20% against the US dollar in two weeks as Iranians rushed to hedge against depreciation of their assets. Some fear an imminent collapse of the nuclear deal and return of economic sanctions.
On Monday night the government stepped in, removing the discrepancy between the exchange rate used by traders – 60,000 rials to the dollar – and the official rate – previously 37,000. The new single rate has been set at 42,000 rials to the dollar.
Iran’s trade balance is actually healthy. There are $50 billion of oil exports and $40 billion of non-oil exports. The country imports $50 billion worth of goods and services every year. Iran is having trouble bringing this money back into Iran. Even though international sanctions were lifted after the signing of the nuclear deal, Iran has not been able to attract any major international banks to the country.
In 2012 and 2013 with sanctions, GDP growth turned negative in 2013 (-5%) and unofficial unemployment rate was 20% by mid-2012. Oil exports dropped to 1.4 million bpd in 2014 from 2.5 million bpd in 2011 Currently oil exports are about 3.8 million bpd. By 2013, Iran had $80 billion in foreign exchange reserves frozen overseas. Automobile production declined 40% between 2011 and 2013. According to the U.S. government in 2015, Iran’s economy has reached a point where it is “fundamentally incapable of recovery” without a nuclear accommodation with the West.
US Sanctions would mean that Iran would be forced to trade cheap oil with China.
Iran has continuing economic problems and vulnerabilities.
Iran’s currency took another big hit, falling between 6-9 percent on Sunday, extending a slide to a new record low on continued concerns over a return of crippling sanctions if U.S. President Donald Trump carries out his threat to exit a nuclear deal with Tehran.
The U.S. dollar jumped to as much as 58,000 rials on the open market in the capital Tehran.
This is reported by Radio Farda. Radio Farda is the Iranian branch of the U.S. government-funded Radio Free Europe/Radio Liberty (RFE/RL) external broadcast service. It broadcasts 24 hours a day in the Persian language from its headquarters in the district Hagibor of Prague, Czech Republic. They use photo evidence from Twitter.
Local media reports on Monday indicate a freeze of trading on open market. Exchanges are displaying 55,000 rials to the dollar on their screens but actually they are reluctant to buy and sell.
However, official bank exchanges are open and selling the dollar for 49,000 rials. There are long lines in front of the banks. People are able to buy small amounts of dollars with the lower rate.
The rial had fallen to 47,000 to a dollar in early February from about 36,000 in mid-September on concerns about Iran’s agreement with world powers to curb its nuclear program in return for the lifting of most international sanctions.
The central bank has allowed the rial to depreciate gradually to compensate for Iran’s high inflation and to help to make exports more competitive.
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