The central bank has stopped allocating forex to importers who buy currency from the free market before applying for foreign currency at cheaper prices.
In a letter to his deputy for forex affairs, the governor of the Central Bank of Iran, Mohammad Reza Farzin, reiterated the need for implementing measures to manage the exchange rates in the unofficial market.
"Based on information on how some importers purchase foreign currency, giving currency to companies that buy forex from the free market before the allocation of cheaper resources is prohibited as of Sunday," the CBI website quoted Farzin as saying.
Henceforth currency will not be allocated without the approval of the CBI chief.
"CBI policy is to curb the unofficial currency market…purchasing forex from the open [unofficial] market is no longer permissible for those who have access to the CBI's cheaper currency resources…Dealing in and with unofficial markets is akin to money-laundering and harms the economy," Farzin said in a tweet.
It has been reported that some importers buy foreign currency from the CBI at lower prices only to sell it in the black market at higher rates.
Last month the CBI issued a warning about selling currency outside official channels and at prices higher than the authorized exchange rates. It said some exchange shops and exporters had ignored regulations and sold currency outside the official channels at rates higher than the authorized rates.
The CBI also said that any deviation or violation by exchange shops and exporters from the announced rates; or buying and selling currency outside the authorized channels and subject to penalization by the regulator and judicial authorities including ban on currency suppliers in breach and cancelation of licenses.
Offenders will face the full force of the law, it stressed. After the announcement, the permits of some exchange shops were withdrawn.
In February the regulator unveiled a new currency/gold market apparently to tame runaway prices that have peaked to historic levels.
It said the goal is to gradually expand the scale and scope of the newly-launched Iran Exchange Center (ICE) and replace it with the free (unofficial) market. When the market is fully developed, the CBI claimed, it can implement policies to better manage the currency market that has long been out of control.
The measures are said to be aimed at stabilizing the foreign exchange market in the face of the difficult economic conditions and reducing price volatility. The central bank has often stressed that the allocation of currency will be based on the “needs of the economy, namely for boosting production and exports plus supply of essential goods.
CBI measures are part of efforts to reform the foreign exchange market, which has faced unending challenges in recent years due to international (US) sanctions and domestic economic problems.
Seeking Safe Havens
Currency rates have jumped to historic highs over the past several months with the embattled rial in free fall. Hit by the rapidly deteriorating economic conditions people seek safe havens to protect what is left of their hard-earned savings.
The CBI decision to peg the official price of the US dollar at 285,000 rials has been welcomed by some experts who see it as a positive step. The policy is expected to create a semblance of stability in the market, which should curb the endless demand for forex.
The CBI boss clarified that the new policy will not apply to non-essential goods and services and the central bank will continue to let the market determine forex rates.
"There are almost 40 types of foreign currency needs, such as students studying overseas, sports federations and those in need of medical treatment in other countries. These are non-essential requirements for which exchange rates will be determined by the market," he said.
The Majlis Economic Commission late last fiscal year called on the CBI to put an end to the “traditional ways to control the currency market” and adopt a leadership role in the chaotic market.
MPs criticized the CBI and the government for setting fixed rates for currencies noting that setting fixed rates is in violation of the law. "The law states clearly that the government must manage the currency market with floating rates," one MP said recently.
Despite such and other concerns, Farzin expressed confidence in the latest move and called for the people’s support. "We are confident that this policy will help stabilize the forex market and protect the interests of the people. We request the people to cooperate with us in this endeavor.” He did not elaborate.
It was not clear how the common people can or should help in stabilizing the currency situation when successive governments over decades have failed to do so.
