The Central Bank of Iran will soon launch a formal foreign currency market where dealings will take place at free rates, the bank’s governor said Monday.
Abdolnasser Hemmati said this in his Instagram post, noting that currency deals will be both in the form of banknotes and hawalah and will be based on “auction mechanism."
The function of the market will be to "discover prices" and provide for the people’s small needs and services.
The announcement comes as the CBI and the government has been struggling to stabilize the currency market after rial lost approximately two-thirds of its value in the past eight months.
President Hassan Rouhani appointed Hemmati in July to replace Valiollah Seif as the CBI boss and tasked him with stabilizing the currency market in the face of mounting US pressure. Hemmati is a former managing director of Bank Melli Iran and headed the Central Insurance company of Iran.
In late September a top government body, headed by Rouhani and the heads of parliament and the judiciary, gave the central bank governor authority to intervene in the foreign exchange market and to manage it – an authority his predecessor was apparently denied.
Partly due to CBI intervention, the currency market seems relatively stable since the US reimposed the second round of penalties targeting Iran's banking and oil sectors.
The rial pared some of its losses during the past week against major currencies.
The US dollar was traded at 131,000 rials on Monday, down from the previous day's 136,000 rials. Other sources quoted the USD exchange rate at 128,000 rials in the unofficial market.
Fara Bourse Well Placed
It is not clear where the new currency market will be based , but most likely it will be hosted by the over-the-counter market Iran Fara Bourse as the market has launched gold coin futures in the past.
Hemmati said the decision to launch a forex had been reached after meetings with banking and capital market experts as well as banks and exchange bureaux.
"The market will be launched with the participation of banks and certified money exchange shops under CBI management," Hemmati wrote, adding that the focus of the market will initially be on spot trading.
He added that exporters can also offer some of their currency earnings in this market and hoped that the move would result in more transparency for a moderate exchange rate to be formed and would act as a model for the trade of commercial hawalas in the secondary market.
As per a CBI directive released Monday, export earnings below one million euros are excepted from the mandatory offering on the secondary market where rates tend to be lower than the open market.
