Some Iranian complain that their expenses are being calculated in dollar, whereas their income is in Iranian rials. To address this issue, we first need to ask whether we are paying our water and electricity bills, and purchasing essential goods in dollar?
Let’s ask a more comprehensive question: Do we pay for water, electricity, fuel, universities, schools, essential goods, amenities, the internet, telecommunications, rail and road transportation and scores of other goods and services in dollar? Do we create added value in proportion to the cost we impose on our employers, especially the government, in return for the salaries we receive from them? Those who say “our expenses are in dollar and our income is in rial” are in fact misrepresenting the problem.
We’ll be able to make a more accurate judgment about the issue by stating the question correctly, Parviz Khoshkalam Khosroshahi, an economic expert, recently prefaced an editorial for the Persian economic daily Donya-e-Eqtesad with this note. A translation of the text follows:
Any goods or services or assets that can be easily exported and imported are practically priced in foreign currency or US dollars (given the wide universality of the dollar). This is not determined by anyone, not today nor yesterday, but it dates back to the history of trading.
Cost of the Dollar
Before undertaking export, you will automatically compare its domestic and foreign prices before conducting the transaction. You normally need to know the value of foreign currency or the dollar to convert the foreign price into rial to compare it. When you see that the foreign price is higher than the domestic price and the difference between the two is bigger than the cost of exporting the goods or services or assets in question, you naturally decide to export and refrain from selling them to a local buyer unless they are willing to pay the foreign price minus the export costs. Some call this the dollar cost. In fact, pricing based on opportunity cost is called dollar pricing.
It is interesting that these people do not talk of the other side of the story, i.e., when someone intends to buy goods or services that can be imported. Before the transaction, the buyer compares the price of the product or service at home with the price of the similar item abroad. In this comparison, the exchange rate of the foreign currency or mainly dollar is needed to convert the price of the foreign product into rials. When the buyer sees that the price of the foreign product is lower than the price of the domestic product and the difference between the two is greater than the cost of importing, they naturally decide to import and refrain from buying the domestic product or service unless the domestic seller will be willing to sell it at the maximum foreign price plus import costs.
Here we see a kind of dollar pricing similar to the previous one, but the opponents of the previous pricing method do not call this dollar pricing and do not speak about it because such a process is tenable when the currency is cheap. In fact, there is no problem with dollar pricing whenever it is in our favor, but it is not only bad, but also a sign of betrayal whenever it is not in our favor.
Rial Income
By income in rial, people are referring to their salaries and wages that are paid for labor services, both skilled and unskilled. Therefore, the same rule stated above about goods, services and assets also applies here. Services provided by workforce, just like any other good or service, can be easily exported and imported and priced in foreign currency or dollars.
But there is an important issue here that is being ignored either intentionally or unintentionally: Given various technical, economic, political, social, cultural and legal barriers, both inside and outside the countries, at least some parts of the workforce cannot export their services easily, so it is not possible for them to compare the domestic and foreign prices of their services in order to determine their salaries and accept or reject the offer of their government or non-government employer based on the foreign currency or dollars. Such a restriction will be the same either for goods and services or the labor force; dollar pricing won’t be possible here.
Therefore, if someone insists on having foreign currency or dollar income, they should remove the above obstacles by improving their expertise and risk taking, so that they can migrate and gain an income in dollar terms. If these hurdles are cleared, the demand for having an income in dollar might go up.
Therefore, if the prices of some goods, services (including labor services) and assets are set by the value of the dollar, it is thanks to the ease of their export or import, and if this is not the case with some other goods or services such as labor, it is due to the difficulty of their export and import. Such restrictions may trigger responses, for example, when some sellers whose products cannot be easily exported or imported may fail to improve their quality or quantity.
People generally need information about the state of supply and demand to value what they buy or sell. Obtaining information in this regard is expensive; therefore, they refer to the key prices available in the free markets, such as the exchange rate to achieve this goal, especially when the prices are unstable.
In other words, people are not looking for dollar expenses or income; they use the dollar as a key price and indicator to evaluate what they have or want to buy or sell. If the prices are stable and the domestic currency maintains its value, people will get their information from the market price for the same goods or services and will not need to refer to the dollar.
Therefore, de-dollarization of the economy will not be useful; or let’s say that the benefits of de-dollarization will be much less than its costs. To de-dollarize, or to more precisely de-currency the economy, one should think about local currency depreciation and inflation shocks as well as economic growth.
Removing the non-economic barriers to productive investment in the economy (fundamental reforms on the supply side), along with the expansion of international trade and the gradual removal of rentier currency from the domestic economy is necessary for achieving this goal. By meeting these conditions, the stage will be set for controlling financial and non-financial imbalances and liquidity (reforms on the demand side).
