Economy, Business And Markets

Missing the Fine Line

Missing the Fine LineMissing the Fine Line

The Central Bank of Iran made the official website for publishing foreign exchange quotes, escalating the bank’s control over the market. The move came after fallout with the newly created Iranian Exchange Association.

The website will now publish foreign exchange quotes instead of IEA’s website. The central bank had previously tasked the IEA to publish the quotes on its website.

The central bank’s ruling has stoked fears of further market disruptions and rate manipulation by the bank among currency traders.

“The central bank is tightening its grip on the flow of information in the foreign exchange market,” a currency trader told Financial Tribune.

 Supervision and Organization

The bank issued new regulations to escalate its supervision and control over Iran’s bureaux de change in June 2015.

According to those regulations, the IEA was left in charge of publishing quotes on an hourly basis according to the weighted average of all transactions registered within that hour. It was also charged with setting each trading day’s opening and closing prices based on the same premises.

Publishing rates from other sources and websites were banned by the regulations, as the bank cut out alternative sources of information.

The IEA was to publish the quotes using SANA, an electronic foreign exchange data network. Bureaux de change were obligated to register all transactions in excess of $10,000 in SANA simultaneous with making the trade. Smaller transaction could be registered with some delay.

 Change of Heart

But the bank stopped SANA’s data for days, without prior notice, in turn stopping the IEA from publishing rates and alarming investors. This has happened twice in the past month. This contradicts the regulations for bureaux de change.

This week, the central bank introduced Sanarate as a temporary alternative to IEA’s website, saying the IEA had not met the bank’s criteria.

“Any future action is contingent on acquisition of required criteria by Iranian Exchange Association,” the bank said in a statement.

The stop came as a shock since the association was publishing the price quotes without any delay. It had also met all conditions required by the central bank.

Now, the central bank has made the change permanent, citing legal grounds for the website, but leaving out the IEA from its statement.

“Sanarate’s website has been created to organize the foreign exchange market and carry out bureaux de change currency transactions’ supervisory regulations,” the central bank said in a statement, citing two articles of the 1972 monetary and banking law and the new regulations for bureaux de change.

Sanarate will give quotes on the US dollar, euro and Emirati dirham only.

 Tightening Grip

Learning from the 2012 currency crisis—when the rial lost around 70% of its value and the bank tried and failed to stop foreign exchange trading—the central bank tried to sort out the foreign exchange market and keeping a stranglehold on foreign exchange volatility.

Firstly, the bank organized bureaux de change, stopping those without permits to do business and boosted supervision on their activities using SANA. Secondly, it started SANA’s operation. Thirdly, it started to crack down on individual traders–long the mainstay of free currency trading–in Ferdowsi Street–the center of foreign exchange trading in Tehran.

What the bank has so far left out are transactions by the big players beyond the reach of government.

 Poor Track Record

The move has unsettled market activists and investors as the central bank is not a good example of transparency or liberal acts.

Recent disruptions to SANA and the banks escalating control over the foreign exchange market have not been well received. “What is to stop them from repeating the past moves if things get out of their control,” a trader in Isfahan, who wanted to remain anonymous, told Financial Tribune.

Investors and critics have a point. There is a fine line between supervision and control and the central bank is missing it. The latter path may be easier, but it certainly isn’t better.