Governor of the Central Bank of Iran Abdolnaser Hemmati says “the government is not yet decided on the mechanism” of allocating $14 billion in subsidized currency for basic goods for the next fiscal that starts on March 20.
Hemmati told reporters Wednesday that 2-3 proposals have been made in this regard and the CBI, Ministry of Industries, Mining and Trade, and Ministry of Agricultural Jihad “have explored the subject from different perspectives.”
Head of the Plan and Budget Organization had said earlier that the government is looking at three options regarding allocating the multi-billion-dollar subsidies importing essential goods for the coming calendar year.
Mohammad Baqer Nowbakhat told state TV that as for the first option, the government could continue on the current path (allocating cheap currency to food, medicine importers) but under more stringent supervision.
Allocation forex at Nima rates (close to the market rate) and reimbursing the difference between subsidized and Nima rates to the people via electronic coupon or direct cash payment are the other methods under consideration.
Economists and market observers have called for dismantling the first method and putting a permanent end to rent-seeking that at times saw the prices of basic goods jump over and above the general inflation rates.
Currency Derivates
Kamran Nadri, an economist and banking expert, believes that establishing a currency derivatives market would be better in helping lower currency rates. Nadri told the news website of Iran Chamber of Commerce, Industries, Mines and Agriculture that although the date for creating the much-touted regulated forex market has been announced, not much is known about this new market.
Chairman of Majlis Economic Commission Mohammad Reza Pour- Ebrahimi said at the Public Private Dialogue meeting on Monday that the regulated forex market will be launched early in next Iranian year
Hemmati said earlier this week that the infrastructure for launching the regulated forex market is in place and it will be launched shortly.
“Probably the regulated market will be launched in two weeks; however, we prefer this happens in the beginning of the next calendar year [starts on March 21],” he said.
The measure is seen as an attempt to create and organize a transparent market where foreign currency will be traded in cash via an electronic platform.
According to Nadri, based on the scant information released by Hemmati and some lawmakers, it can be surmised that the market's mechanism would be similar to that of the Iran Mercantile Exchange where sellers and buyers are the main players.
"However it remains to be seen whether or not the same results would emerge here as well and what would be the CBI's solution," Nadri said.
The expert added that hard currency is not like steel or metal that is sold on the IME. “In the forex market there are a variety of currencies that importers are hunting for.”
He predicted that due to the difficulty of trading with the US dollar, the planned regulated forex market would focus on the euro.
Nadri expressed concern that the CBI would intervene in the planned market in a "forceful" and unhealthy manner.
"All said, creation of a regulated forex market is a logical step [to curb volatility] but a forex derivate market would be more suitable for addressing market fluctuations and lowering forex rates.”
A currency future, also known as FX future, is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date.
Regulations for launching the first-ever foreign exchange market in Iran were approved last month by the Money and Credit Council – the top financial decision-making body headed by the CBI boss.
It is yet another CBI measure to regulate a market dominated by informal traders. Currency trade went underground in the spring and summer of last year when the CBI banned all currency trade outside the banking system including the certified exchange bureaux.
Now currency trade takes place in a limited manner in currency exchange shops and the so-called integrated forex deals system, known as Nima, which is a platform for exporters and importers to buy and sell currency.
Chairman of Majlis Economic Commission Mohammad Reza Pour- Ebrahimi said at the Public Private Dialogue meeting on Monday that the regulated forex market will be launched early in next Iranian year.
