A strange fallacy in Iran’s economy claims that as foreign exchange rates increase, the country’s exports will follow suit.
This is a fundamentally wrong statement, because first of all exporters need stability and improvement of relations with the world. If the exports of a country were supposed to improve significantly through the rise in the exchange rate, Iran should have jumped ahead of China to the top of the list of world exporters, thanks to the continuous depreciation of its currency in recent decades. But we all know this is not a case. Hamid Hosseini, an economic analyst, evaluates this assumption in a write-up for the Persian daily Ta’adol. A translation of text follows:
Although the devaluation of local currency is one of the tools used by some countries to boost exports, this process requires a condition without which the promotion of export cannot be realized. For example, China, with all its domination over exports, has increased the value of its currency against the dollar from around 6% to 7.2% in the past one year. That is, each US dollar is sold at 7.2% of the yuan.
The exception for Iran’s economy is that devaluation would have been beneficial for exports, if Iran was not subject to sanctions. But at present, it cannot use the foreign exchange tool to boost its exports because this devaluation is not rooted in economic planning, but has been imposed on the economy. In fact, Iran has not devalued its money as a result of an increase in its competitive power; instead, these currency fluctuations are the outcome of sanctions and internal instability.
The depreciation of national currency worsens the concerns of exporters. No Iranian exporter is happy about the rise in exchange rate. Some people and companies may gain benefits for a short time, but in the long run it will be detrimental to them.
Forex Stability Preferred
Exporters prefer stability in the exchange rate, as it increases the desire of foreign customers to do business with Iranian companies and reduces the domestic economic risk. This proposition is effective for economies that plan purposefully and set long-term goals for themselves, but not for Iran, as its plans are unsustainable.
Statistics show Iran’s exports have decreased both in terms of value and weight despite the rise in exchange rate. When Iran’s national currency lost its value in the current Iranian year (started March 21), the value of export declined by 12.5% year-on-year in the month ending Sept. 22 and its volume dipped by 18.5% in the month ending Oct. 22.
Even in the previous year, the growth in export value, which occurred because of the increase in domestic prices, slowed following the adjustment of global prices. Even in terms of volume, Iran’s exports continued to decline.
For the first time, the economy registered a negative balance of over $3 billion. It means that Iran’s imports were $3 billion more than its export.
Many people would wonder who benefits the most from the depreciation of national currency. The government, of course. It used to distribute its oil and gas and other export commodities at a subsidized exchange rate, but with the rise in exchange rate, these items are being offered at higher prices, so one of the main beneficiaries of the increase in the exchange rate is the government.
The second group of beneficiaries of currency fluctuations are economic players who are both producers and exporters. The next winners are large and successful semi-governmental economic enterprises that have access to extensive facilities. However, in addition to the government, the biggest winners of currency fluctuations are profiteers and brokers who hoard currency and goods to make huge profits.
Such a process has losers as well. As the government and businessmen get richer, people get poorer. The huge profit that the government, brokers and semi-governmental companies make come from depreciation of local currency but at the cost of making people poorer.
These people are not in a position to save dollars, gold coins or goods. They get paid in rial, but have to spend in dollar. Someone, if any, should reach out and help them.
