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Iran Lawmaker Says People Should Be 'Encouraged' To Change Their Dollars Into Devalued Rials

Iran, Marivan -- Forex black market in the city of Marivan, in Kurdistan province near the Iraq border. FILE PHOTO

A member of Iran’s parliament has cited the central bank as saying that people in the country have stashed away $35 billion at their homes.

Mohammad Hossein Farhangi called on President Hassan Rouhani's administration on Sunday, July 5, to direct people's hard currency reserves to the market by offering incentives.

Farhangi also maintained that the people's hard currency reserves kept at homes would take care of the country’s needs and restore the government's social standing.

Nonetheless, Farhangi stopped short of saying why people should pour their foreign currency reserves into the local market while the dollar is rising rapidly, and the Iranian national currency, rial, is fast losing its value.

Sanctions imposed by the United States have stopped 90 percent of Iran’s oil exports and tens of billions of dollars in foreign currency revenues. The government is desperate for U.S. dollars and other major currencies.

The CBI recently banned "unlicensed" people from keeping more than 10,000 euros (about $11,000) or equivalent in hard currencies.

Attempts to go after people's foreign currency savings is politically dangerous for the Islamic Republic, but amid desperation the government might make mistakes. For example, it is now trying to use legal intimidation against exporters to force them to repatriate their hard currency earnings.

The rial has lost nearly thirty percent of its value since the end of March and the rate of foreign currencies is soaring in the local markets. On Sunday, July 5, the U.S. dollar reached 223,800 rials.

In recent years, some Iranian officials have maintained that $ 20 billion in foreign exchange is kept in people's homes. However, new CBI statistics show that people are still converting their money into dollars to preserve the value of their assets.

Meanwhile, the $35 billion figure mentioned by the lawmaker is equivalent to about six months of Iran's total imports. Therefore, it is not clear how this amount alone can tackle the government's problem.

According to the International Monetary Fund (IMF), Iran's total exports are expected to reach $46 billion this year, while the country needs more than $ 64.6 billion for importing essential goods.

Iran's exports have almost halved compared to two years ago.

The IMF says Iran's significant foreign trade deficit will cause the government's foreign exchange reserves (at home and abroad) to fall by $19 billion from last year to $85 billion this year and drop further to $ 69 billion next year.

However, the IMF's assessment was published in April. Therefore, factors such as the outbreak of coronavirus in Iran, a 44% drop in Tehran's non-oil exports in 2020, and the ever-falling rial have not been considered in the IMF forecast.

Moreover, the IMF's calculations were based on the daily export of half a million barrels of oil, but the average daily export of Iranian crude has declined to below 180,000 barrels per day.

In January, the International Finance Corporation (IFC)released a report saying that Iran's foreign exchange reserves had been "severely reduced" by sanctions and would fall to $ 73 billion by early spring.

If US sanctions continue, Iran's foreign exchange reserves will fall to $ 40 billion over the next two years and to $ 20 billion by 2024, IFC said.