The Central Bank of Iran said it has plans to launch a currency stabilization fund to lift the sagging rial and stabilize the chaotic forex market.
According to Mohammad Reza Farzin, the CBI governor, the fund will intervene if and when necessary to maintain exchange rate stability.
The move is one of several being implemented by the regulator to improve the forex market that has seen more than its fair share of turbulence over the past several years.
"Another measure will be the establishment of a currency futures market, which will allow for the purchase and sale of forex at a fixed price. This will help make rates more predictable for businesses and individuals," Farzin was quoted as saying by the CBI website.
This will be followed by a currency swap market, which should help balance trade with other countries. The top banker recalled that Iran imports more than it exports, "which creates problems. The swap market would help address this issue."
In March the CBI unveiled the Iran Center of Exchange apparently in the latest bid to control forex and gold prices. "Rates at this center will be the reference rates based on demand and supply of currency and gold, as well as key economic indicators," Farzin then said.
Launch of the currency stabilization fund is seen as a significant step in the right direction for the struggling economy. With the implementation of these measures, it is hoped that the country's forex market will see a semblance of stability and predictability, help foreign investment and boost much-needed growth, the CBI boss said.
Savers Buy Dollars
Farzin said Iranians hold approximately $16 billion in foreign currency in their homes or in bank deposit boxes across the country.
It is often reported in the domestic press that the people worried about galloping inflation and unstable state of the economy mostly prefer to buy currency and gold as safe havens
In addition to these measures, the regulator is exploring ways to utilize gold reserves to bolster the economy. "The banking system is accepting gold jewelry as collateral for loans and also the CBI is considering minting gold coins as a way to help stabilize forex rates.”
The banker stated that the production of gold coins would be in the interest of the economy by providing resources for the production sector.
Elaborating he said, in case the price of gold increases, the CBI could use its gold reserves to buy and sell and convert some of its resources into coins, and at the same time collect cash resources from the market.
"Minting gold coins has no direct benefit for the people, but people decide where to invest. When the dollar jumps gold coins can be used by people as an alternative to the dollar, and minting gold coins can be employed as a monetary policy to control the price of the dollar."
Farzin noted that some banks currently accept gold coins as collateral. "Those seeking a loan can put up gold jewelry as collateral in Kargoshaei Bank, which is a subsidiary of Bank Melli Iran.
Gold has been used as a reserve of value for thousands of years, and has been the backbone of the currency of every country. The CBI is wants to use people's gold as well as foreign currency kept in homes and bank safe deposit vaults transferred to bank accounts.
Recently the CBI said buyers of the so-called “cheaper” currencies must have a forex bank account with domestic financial institutions, requiring moneychangers to transfer the forex they buy to those accounts. Besides, buyers are obliged to have at least $100 or €100 in their accounts for at least six months, otherwise they are not eligible to buy currency.
Per law, every Iranian can buy a fixed amount of foreign currency at slightly lower rates compared to the open market by presenting their ID. The rule led to long lines of buyers who then sold it in the open market at higher prices to make an extra buck. The measure apparently is to prevent middlemen from using the ID cards of the poor and homeless and use them as money mules.
De-Dollarization
The CBI chief also said that the bank will continue its efforts to reduce the role of the US dollar in the economy. The country has been cut off from the US dollar since the imposition of western sanctions in 2011, leading to the pursuit of other currencies such as the Chinese yuan, the Emirati dirham, and the euro. The central bank has been struggling to reduce this reliance for several years and now seems to intensify the policy this year.
The governor stated that since 1973 there has been an Asia Clearing Union where member countries exchange their local currencies. Iran, India, and Pakistan are members of the union and Russia is negotiating to join.
"This month central bank governors of the union will meet in Tehran and the union will be transformed into a center for eliminating the role of the dollar and strengthen trade between member countries using local currencies."
The CBI plan includes multi-party currency agreements, according to the governor. "The Bank is currently doing business with China using the yuan and with Russia using the ruble…negotiations to have a monetary agreement with Russia have already begun, and if the governor of the Central Bank of Russia visits Iran, the agreement could become tripartite by including India or China."
The CBI has already connected its banking messaging system with Russia and is planning to connect its banking card system, Mir, with the Russian card system, Shetab, which will enable Iranians to use Iranian bank cards in Russia. It has also reached an agreement with China to strengthen its monetary relations.
