Economy, Business And Markets

Forex Rate Stability Subject to Market Forces

Forex Rate Stability Subject to Market ForcesForex Rate Stability Subject to Market Forces

Imbalances in the demand and supply of foreign currency were and still are a big hurdle to unifying exchange rates, a financial expert says.

“The government needs sufficient forex reserves to manage the currency market similar to UAE and Saudi Arabia,” Bahaodin Hosseini Hashemi told the economic news website

Noting that oil and gas exports are still the main foreign exchange earners in Iran, he noted that “Such revenues have drastically declined in the wake of volatility in the international oil market.”

Global oil prices have dropped more than 60% since the summer of last year as high production and inventories have coincided with the economic slowdown in Asia, particularly in China.  

Meanwhile, Hashemi said lower parity rate between the greenback and euro has given rise to the value of US dollar which is further fueled by rising demand for the currency.

“Demand for foreign currency should be addressed in a timely manner, otherwise it could lead to (sudden) price jumps.” he warned.

The expert regretted that successive governments had lost several opportunities to unify forex rates since 2002 and said “Now does not seem the right time for such a move. The government is apparently waiting for market forces to unify the official and market exchange rate and then make an official announcement.”

A single forex rate will eliminate extra demand and rent-seeking in the market, he said, and called on the government to adopt corrective measures while moving towards a floating exchange rate regime.

Iran reverted to dual exchange rate system in 2012 when chaos in the vulnerable foreign exchange market caused the rial to lose its value significantly (almost 70%) against the US dollar and other major currencies.