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Iranian Currency Nosedives As New Forex Policy Seems Ineffective

People line up at Tehran's Forex market after the announcement of new foreign exchange policies, 07Aug2018

Only days after the announcement of President Hassan Rouhani’s new forex policy, the value of Iranian national currency rial nosedived once again on the country’s open market.

While the dollar surpassed 10,000 rials, the private forex market is struggling with unexpected fluctuations, specifically over the value of the dollar, reports say.

Retreating from its earlier attempt to stop the downfall of rial, Rouhani’s government agreed this week to lift the restrictions it had imposed on forex trading in the private market.

The government says its new policy, based on what it has described as “Secondary Forex Market”, is to restrain the unbridled soaring value of the foreign currencies. It is basically reversing its previous ban on trading by the private sector.

The primary exchange mechanism is for the government to sell cheap dollars to approved importers of goods and companies who need material and machinery from abroad. This is basically a subsidy to make the essential parts of the economy function.

The new rules made dollars cheaper for a couple of days, which can also be attributed to the central bank possibly releasing dollars into the market.

Nevertheless, the value of rial collapsed again on Thursday and passed a six-figure mark against dollar.

Meanwhile, the value of Bahar-i Azadi (Freedom Spring) gold coin also shot up to 34,500,000 rials (roughly $705).

Iran's rial has lost more than half its value since April, in part over fears of renewed US sanctions, but also thanks to an ill-judged attempt to fix the value of the rial that month and make it illegal to trade at a higher rate.

The decision triggered widespread currency speculation on the black market, and accusations that individuals with political connections were abusing the system.

Rouhani sacked the governor of the Central Bank of Iran (CBI), Valiollah Seif, last week and replaced him with Abdolnasser Hemati, the former head of Central Insurance of Iran.

Furthermore, last Sunday, August 5, the judiciary spokesman said that CBI’s top foreign forex official, Ahmad Araqchi, along with several “unnamed” individuals, has been arrested.

“There has been growing demand for dollars among ordinary Iranians, who fear a further plunge in the value of their assets and growing prices of goods, even those not imported from abroad”, Tasnim news agency affiliated with the Islamic Revolution Guards Corps (IRGC) reported on July 30, adding, “The purchasing power of Iranians has plummeted for the umpteenth time in recent months as wage increases have lagged far behind prices.”

Unexpected and shocking fluctuation in Iran’s forex market has led to several protest rallies across the country. On June 25, store owners at Tehran’s Grand Bazaar closed their shops to protest the dramatic rise in the rate of exchange of foreign currencies that have adversely affected the market and made prices unaffordable for buyers.

The move came one day after strike and protests broke out at Tehran’s cell phone market.

Videos released on social media showed demonstrators chanting slogans against the rising prices and Iran’s involvement in the Syrian civil war. “Leave Syria alone, think of our own,” the demonstrators chanted.

While merchants at Tehran’s grand market (called bazaaris) are traditionally supporters of the conservative clergy, the Islamic Republic’s Supreme leader, Ayatollah Ali Khamenei has repeatedly accused “foreign enemies” [Saudi Arabia, Israel and US] of provoking recent anti-establishment protests and demonstrations against financial corruption across the country.

The head of judiciary, Ayatollah Sadeq Amoli Larijani, has also described the downfall of the rial and rising gold prices as “suspicious puppetry” run by “dirty hands behind the curtain.”

Echoing the comments of his younger brother, parliamentary speaker Ali Larijani has also insisted hostile foreign intelligence services have focused on Iran’s gold market.

“The enemies’ intelligence services in disguise are after damaging Iran’s economy,” Ali Larijani told a parliamentary meeting on July 30.