Fluctuations in forex market in recent months have compelled the Central Bank of Iran to seek help from authorized exchange bureaus to restore stability to the chaotic market.
Outlining the results of meetings with CBI officials, the Association of Bureaux de Change Operators of Iran said Thursday that they had made “decisions to boost the market and ease concerns about currency volatility” and draw on the ability of authorized moneychangers to achieve the desired results.
One measure says the CBI will cooperate directly with moneychangers to improve currency allocation to applicants in the secondary market, locally known as Nima, according to a notice posted on the association’s website.
“Henceforth, moneychangers will be more responsive to the demand for currency”.
Moneychangers have been asked to collaborate closely with non-oil exporters to facilitate currency access in the market via their networks in other countries to expedite repatriation of exporters’ earnings.
Nima is an online platform affiliated with the CBI to which exporters sell their overseas earnings and companies buy it for importing non-essential goods, machinery, equipment and raw materials. The rates are usually below those on the open market.
The association said it would abide by CBI policy to help stabilize the currency market, adding that it is “the only official private sector in charge of currency-related services”.
The body is asked to cooperate with the regulator to identify websites and unauthorized currency dealers in social media “abetting fluctuations in the currency market”.
Cryptocurrency Potential
An interesting point in the decisions made by the CBI and moneychangers is the proposal to use “digital currency” to speed up repatriation of export forex earnings.
Despite the fact that trade in cryptocurrencies is legally prohibited, Iranians are increasingly using digital currencies for international trade outside of the jurisdiction of the traditional banking system.
The government in July 2019 announced that it recognizes mining cryptocurrency as a legal industrial activity. However, the stance was not clear regarding rules governing trade in cryptocurrencies as it disclaimed any responsibility for risks emanating from such digital trade.
It can be inferred from the announcement that the government has implicitly allowed cryptocurrencies for payment and trade outside Iran.
“Using cryptocurrencies for transactions inside the country is banned,” according to an excerpt of the Cabinet’s decision published on the government’s news portal.
Due to the fact that cryptocurrency is untraceable, it can be seen as a means that allow Iranians to make international payments while bypassing stringent government banking rules.
The government’s reticence over using digital money for outbound trade, while explicitly banning users from domestic trade, gives rise to speculation that Tehran may by trying to dodge tough US economic restrictions with the help of blockchain and other financial and monetary technology.
Supply Crunch at Nima
Steep decline in the flow of foreign currency into the secondary market is seen as the main reason behind the latest bout of forex fluctuations in recent weeks.
Reviewing market data, IRNA reported Thursday that the currency supply in the first two months (March 20- May 21) of the current fiscal year dropped 49.8%, or $1.7 billion, compared to the corresponding period last year, mainly due to coronavirus and its ruining impact on foreign trade.
Since its inception in spring 2018, Nima has played a significant role in meeting import needs for foreign currency. Currency is supplied to the market largely by the repatriation of non-oil export earnings under CBI obligations.
As per data from the Tehran Gold and Jewelry Union website, the dollar has jumped more than 12% against the rial in the course of two months.
The dollar on Thursday was sold for 173,050 rials at moneychanger affiliated to the central bank. It was quoted at 177,500 rials in Tehran’s open market.
In response to the pattern of rising currency rates, CBI Governor Abdolnasser Hemmati blamed three main factors.
Speaking to state TV late on Thursday, he singled out the hostile “maximum pressure” by the US government on Iran’s economy that was further exacerbated by Covid-19 and the unprecedented plunge in international oil prices.
“A combination of these factors has caused disruptions in the repatriation of foreign currency,” IRIB news quoted him as saying.
According to the senior banker, exporters have not returned their overseas to the tune of $20 billion in the last fiscal year that ended in March.
The CBI has given until July 21 to non-oil exporters to repatriate their earnings, Hemmati said, reassuring the public that “stability will return the currency market”.
He said exporters will return more of their earnings in coming days as businesses across the globe resume and border restrictions with neighbors are eased.
