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Gov’t Currency Deals Criticized

Gov’t Currency Deals Criticized
Gov’t Currency Deals Criticized

A trade expert has criticized the currency deals the Iranian government has recently signed with several neighboring countries, saying none will benefit the national economy.

Last week the Central Bank of Iran announced it reached agreements with central banks of Turkey, Iraq and Russia to eliminate the US dollar and euro as intermediary currencies and use local currencies instead.

“As Iran’s exports to the three countries significantly exceed its imports from them, the Iranian government will soon face a large inflow of uncommon foreign currencies that cannot be used in trading with other nations,” Majid Reza Hariri, head of the Iran Chamber of Commerce’s import committee said, as ISNA reported. “Compared to $14 billion worth of exports to Iraq, Iran has a little import from that country. Moreover, the trade with Russia is small, and Iran’s oil and non-oil export tops that of Russia.”

“Such agreements,” he argued, “are advantageous only for the two nations having a balanced trade.” The extra revenue Iran earn in Turkish, Russian and Iraqi foreign currencies must be converted to other currencies, a process that is not expected to yield benefit for the Iranian side, the expert noted.

On the currency swap agreements reached between the ASEAN (Association of Southeast Asian Nations) countries, Hariri said 10 member countries trade with the Japanese yen, Chinese yuan and South Korean won, all being strong currencies in the global markets whose parity rate against major currencies is almost stable.  

Turkey is among the countries Iran has reached a currency agreement with. “The Turkish lira has depreciated between 20 to 30 percent against the US dollar over the last year,” he said.  

China has several currency swap agreements with ASEAN countries and Russia to import raw material, but the Chinese yuan is a strong currency and its parity rate against common currencies is almost stable, he noted.  “That encourages other countries to trade with China whose economy is the second largest in the world.”

“China is not a good role model for Iran in terms of currency agreements since its trade balance exceeds $4,500 billion while the figure stands at only $100 billion for Iran,” he went on to say, suggesting that Iran should adopt a policy that is compatible with its economic situation.    

Hariri believes that the currency deals should be initially implemented on a small scale for limited goods to help the experts have a precise assessment of the agreement. “Then they can be further expanded.”

He concluded that the currency swap agreements would boost the national economy only when Iran increases non-oil exports and receives currencies that are common in international transactions.

Financialtribune.com