The Majlis Research Center has called on the government to support capital market expansion and foreign currency futures as effective tools to check forex shocks.
In a report ‘Measuring Foreign Currency Crisis in Iran’s Economy’, the center reviewed the impact of economic sanctions and speculative activities on the economy, Fars News Agency reported on Sunday.
The report recommends government authorities to empower capital market and promote futures in stock exchange which could eventually “help attract small funds and direct speculators to the equity market.”
It commended the government’s policy to “manage the surge” in foreign exchange rates because it neutralized pressure on foreign currency reserves through market mechanisms and helped curb demand. Authors of the report, however, believe more transparency is needed in supply and demand of hard currency which can also be provided by establishing a currency futures bourse and by extension reduce investment risk.
The report recommends the government to undertake “currency swap agreements with other countries and promote trade in local currencies to reduce problems in foreign exchange transactions.”
Close interaction with other markets, namely gold bullion and housing, could also provide the government with effective monitoring tools, according to the report.
To this end, expanding a gold coin futures market helps contain speculative activities by promoting transparency in supply and demand in the gold market giving the government the space for timely intervention through market mechanisms.
In the housing sector, the report recommends the government to use special financial instruments through the capital market and develop long-term plans for the construction industry in line with public demand. “Supply-side policies can help free dormant liquidity.”
The report outlined the negative impact of economic sanctions against the economy including depreciation of the rial, decline in oil exports, forex revenues and domestic manufacturing as well as an increase in youth unemployment, inflation rate and the cost of forex transactions and imports.
It blamed the rise in speculative activities on high inflation, personal monetary gain, untimely intervention by the central bank, economic sanctions, and instability in the foreign exchange system.
