The Central Bank of Iran wants to gradually expand the scope of the newly-established Currency and Gold Trade Center (CGTR) so that it could replace the free (unofficial) market, the CBI governor Mohammad Reza Farzin said.
“Once the market is fully developed the CBI will be able to administer policies to better manage the currency market. The center is intended to mark the beginning of a new approach to managing the forex market,” he said in Tehran Tuesday at the ceremony to launch the CGTR.
The regulator has unveiled the center apparently in the latest bid to control forex and gold prices that have jumped to levels unseen in the history of the country.
CGTR rates will be the “reference rates in the market based on demand/supply of currency and gold, as well as key economic indicators,” Farzin has said.
It will be the main market for forex and gold, he noted. “We have plans to introduce new financial instruments for trading gold and currency including futures, forward instruments, forex salaf contracts…”
However, he said the common future deals in the free market is not authorized by the central bank and is banned.
“We will establish a forex salaf market where foreign currency is sold at future rates. We are in the process of finalizing rules for such operations though we have already started future deals at the Iran Central Exchange,” he said.
“At the moment, ICE deals that take place at eveining are based the price of foreign currencies in the day after,” he said, “Future rates would help us diturb unauthorized moneychangers’ expectations.”
Forex futures are derivative contracts that are cash-settled when they expire on set dates.
Forex futures are traded for several reasons. First, because of the various sizes of the contracts they are preferred by early investors who want to trade smaller positions, and conversely, because they are liquid large-scale investors use it to take on significant positions.
The senior banker added that the CBI via the Nima market will continue supplying importers of basic goods and medicine with cheaper currency at 280,000 rials to the US dollar
A currency forward is a binding contract in the forex market that locks in the exchange rate for the purchase or sale of a currency on a future date.
The CGTR will also have a floor for remittances, where export companies can sell their revenue in the form of hawala.
Farzin has blamed inflationary expectations as the main culprit behind the skyrocketing forex rates. “A wide range of factors are impacting currency prices that must be controlled by other organizations. Insofar as the CBI is concerned, we decided to create a center where the real demand for foreign currency can be addressed.”
The CGTR is located at the Iran Center Exchange premises in downtown Tehran but will soon move to a new building. The trade center idea was initially floated as an amendment to ICE operations.
The senior banker added that the CBI via the Nima market will continue supplying importers of basic goods and medicine with cheaper currency at 280,000 rials to the US dollar.
Nima is an online platform affiliated to the CBI through which exporters sell their overseas income in the form of hawala and companies buy for importing goods, machinery, equipment and raw material.
"We have been supplying importers with enough forex in the Nima system," he said. "The system recorded 48% increase in supply since the beginning of the year in March."
Last May the government officially ended the costly and controversial currency subsides ($1=42,000 rials), aka as preferential currency, which was given to selected importers of basic goods.
Soon after businesses argued that with the termination of the forex subsidy policy they were in need of huge infusions of cash for importing raw material to bridge the gap between subsidized forex and the new prices. They urged the government to reconsider and compensate the liquidity crunch.
According to local reports, the US dollar traded at a new high of 498,500 rials on Tuesday in Tehran's open market, slightly lower on the previous day. The ICE tagged the greenback at 447,600 rials. Melli Exchange and other bank-affiliated moneychangers quoted the dollar at 451,190 rials on Sunday, up 0.11% on the previous day's close.
The euro lost 0.23% and was traded at 531,400 rials. Exchange bureaus sold the European single currency for 481,870 rials, unchanged on the previous day. The UAE dirham lost 0.07% on Tuesday and bought 136,200 rials in the unofficial market. The GBP jumped 0.62% to finish Tuesday trade at 603,600 rials.
Gold prices decreased on Tuesday. The Emami gold coin was quoted at 293.7 million rials, down 1.66% on the day before.
Half Bahar Azadi coin declined 3.25% to buy 154 million rials, the Quarter Bahar Azadi coin also lost 3.38% to end at 103.5 million rials and one gram of 18-karat gold was traded at 23.27 million rials.
