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Dollar Surge as CBI Struggles to Tame Market

Finance Desk
Dollar Surge as CBI  Struggles to Tame Market Dollar Surge as CBI  Struggles to Tame Market

The US dollar continues to rattle the foreign exchange market with gains in the free market. The currency posted a weekly gain against the rial, taking a heavy knock on Monday amid news that the central bank is intent on systemizing the money market.

 At morning trade the greenback was sold at 34,750 rials up from the previous day's close of 33,980 rials according to the Gem and Jewelers' Union website. The price tends to be slightly higher at Ferdowsi Sreet—Tehran foreign exchange trading hub. By 11:56 GMT the currency lost some ground and was traded at 34,200 rials.   

Greenback fluctuations during the final weeks of summer are fodder for speculations and the rumors about government intervention. That may or may not be the case. What is certain is that the market has not lived up to heavy expectations of a relief rally for the stumbling rial in the aftermath of the landmark nuclear agreement signed in July.

Buying sentiments prevailed in the market, according to close observers. While the official, subsidized dollar remained unchanged at 29,953 rials. The "bankers' rate" stood close to 34,000 which seems to be the favorite rate for bankers who have recently taken to manipulating the free market by bidding their own rates.

Samad Karimi, Head of the Export Office at the Central Bank of Iran attributed rial's recent rout to a surge in "real demand" for the USD at the prospect of sanctions relief and a spike in speculative activities in the forex market.

"There has been a giddy hike in informal trading which sometimes reach $400 million a day," he said in a TV interview late on Sunday.

With oil getting a thrashing in the international market and rise in forex demand for travel have also made the currency dearer, according to Karimi. He said the demand for greenback has exceeded the supply but said stability in prices would improve as the paralyzing sanctions fade in the coming months.

 According to members of US President Barack Obama’s negotiating team, Iran is likely to gain $55 billion once the nuclear agreement is in place, much of it in the form of foreign reserves previously held overseas.

But the dollar remained largely directionless in other Asian markets on Monday, as investors wait to see whether or not the Federal Reserve will start raising rates at its Sept. 16-17 meeting. The Bank of Japan is also scheduled to hold its policy meeting on Sept. 14-15.

Now 'Uncle Banker'

 Although CBI's Karimi iterated that the bank refrains from meddling in the forex market, a recent phenomenon has cast doubt on such claims. In addition to the official dollar rate allocated for "essential trade" and the free market rate, now a third rate known as "bankers' rate" is rearing its head.

According to market observers, foreign exchange units of banks are now heavily influencing forex rates by pumping huge quantities of greenback into the ever thirsty market. Masoud Dashti, head of the Association of Bureaux de Change operators estimates a 70-80% market share for what is now colloquially termed 'Uncle Banker'.

In an interview with ISNA, he warned about the emergence of an oligarchy of banks with a huge say in setting foreign exchange rates, threatening the existence of private bureaux de change.

The pressure also has mounted on uncertified bureaux de change owners as the deadline to get registered with the regulator ended Aug.8. In a live TV interview Sunday night, Abdul Mehdi Arjmandnejad, director of banking regulations, licensing and anti-money laundering at the CBI ruled out any other option for the unlicensed bureaux de change except to get in line with the CBI structure or disappear.

He revealed that the number of uncertified foreign exchange offices have exceeded ones with permits by ten times, but that the CBI was  reviewing  400 new requests for authorization .

The official reiterated that cracking down on the unlawful bureaux de change is not possible by the CBI alone and solicited help from the Judiciary, law enforcement forces and Parliament.

 

Financialtribune.com