Fluctuation is not a correct term for what is happening in Iran's foreign exchange market, the deputy head of Iran Chamber of Commerce, Industries, Mines and Trade said.
“Foreign currency rates normally range from 1 to 2% in other countries, but in Iran such fluctuations are close to 40%," Jamshid Edalatian was also quoted as saying.
"We need raw materials for our factories. But many goods and services are not being traded in the market due to instability of foreign currency rates and the fact that the recent foreign currency measures have thrown markets into limbo.
Edalatian noted that instability in forex rates has impacted the decision making of investors and traders.
Many other traders have echoed these concerns since the rial lost close to half its value on the free market two weeks ago, sinking to a record low of about 60,000 against the dollar.
On April 9, the Iranian government decided to finally put an end to this chaos and control the bullish forex and gold markets by revoking the dual foreign exchange regime. But its timing and implementation have not been appreciated by a number of traders.
Iran has long been operating two exchange rates: a free market rate and an official exchange rate set by the Central Bank of Iran on a daily basis and used for state transactions.
The government has been working for years to gradually increase the official exchange rate and bring it closer to the free market rate. In line with this goal, it has also been shrinking the list of imported commodities eligible to receive foreign currencies at official rates.
> From Volatility to Ambiguity
Since the initiation of the new government policy on foreign currency rates, almost no new import orders have been registered, the head of Beverage and Foodstuff Importers Association, Mohammad Farahani, told ILNA.
“Today Iran’s economy has moved from ‘volatility' to ‘ambiguity'. Members of our association are constantly calling me to voice their concerns about their depleting raw materials and the fact that they have to replenish their stocks. Such crucial decisions directly affect the daily lives of ordinary people,” he added.
Masoud Daneshmand, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture, told the Persian daily Shargh that volatility in foreign currency rates would affect production costs and final prices.
“With a 17% rise in forex rate, inflation would definitely exceed 20% this year unless the government adopts contractionary fiscal policies again and this would lower economic growth and increase unemployment as well as poverty,” he said.
According to First Vice President Es’haq Jahangiri who addressed the nation on the day the decision was made, the US dollar would be offered only at the unified rate of 42,000 rials to everyone and those dealing with any other rate would be violating the law and guilty of smuggling. The statement by Jahangiri pointed out that the US dollar at a rate of 42,000 rials will be given to importers, travelers, students studying abroad and medical patients going overseas for treatment.
In a recent directive, the Central Bank of Iran announced that hard currency would only be supplied by certified banks to 33 designated groups.
> Open to Corruption
The government has created 33 corruption-generating pits, says Farhad Ehteshamzad, the head of Iran's Imports Federation.
“Corruption would spread quickly wherever there is a rent-seeking opportunity or privilege for a select few. So far, we have only witnessed the Central Bank of Iran issuing toothless directives.”
Mohammad Ali Rahmati, an economic player, believes that the economy does not respond to prescriptive statements or commands, as the forces of demand and supply determine the prices of commodities and the changes therein.
“This is a reality acknowledged even by those who have done a short stint of an economic activity. Currently, a group of traders prefers to hold on to their commodities for fear that they might later be forced to buy the same items at higher prices," he said.
"Traders and travelers are not the only consumers of foreign currency. Therefore, the plan to only provide dollars for the so-called 'real customers' will not pan out the way government wants. People who are planning to migrate or transfer their investment to another country or those who want to reside somewhere else for a couple of years also need dollars. It’s definitely hard to tell who the real customer is and who is not. These people would finally get their needed currency but from markets outside the country’s legal banking system and at a different rate.”
Farhad Fozouni, a member of ICCIMA, declared that no one knows what is going to happen in the forex market.
“CBI issues a couple of directives [almost] every day while the officials keep saying that there is no problem with imports and exports. Under the circumstances, we traders are no more than bystanders,” he said.
In its latest directive on Wednesday, CBI announced that it would dump the dollar and manage its local currency by primarily using the euro. The European currency will also be used in all official statements and for giving the rial’s exchange rate.
