Economy, Business And Markets

Force Not an Option in Currency Market

Force Not an Option in Currency Market  Force Not an Option in Currency Market

A Tehran-based analyst has censured the Central Bank of Iran for recent raids on the unofficial foreign exchange market by Law Enforcement Forces saying the unlicensed money exchange networks should be blocked in prudent ways.  

Admitting that an official and recognized channel for hard currency dealings is necessary in any market, Kazem Dousthosseini highlighted the need to confront currency dealers that operate unofficially and with impunity, Eghtesad News website reported on Friday.

He, however, pointed out that “Poor forex services offered to the people in the recognized bureaux de change and banks have given rise to dealers and speculators in the forex market.”

Doosthosseini warned that dealers and speculators manipulate the market and called on the CBI to deploy specific tools to stop them. “One way for the CBI is to meet the foreign exchange demand and another is to raise public awareness on forex transactions.”

He welcomed the CBI’s deployment of police to organize the street forex dealers but warned that “Apart from supply and demand and other economic factors, Iran’s forex market is easily affected by market sentiments. Thus, excessive use of force in the forex market should be avoided.”

The expert dismissed any connection between the CBI’s intention to unify exchange rates and the use of force and said “The regulator seeks to partly regulate the unofficial forex market with help from the LEF.”

Sohrab Ashrafi, another market analysts criticized the CBI’s resort to the LEF in the forex market and said “The move may push forex deals that are now conducted in public to the underground” which would undermine the regulator’s supervision over the market.

Last week the LEF carried out raids on street currency dealers and middlemen in Tehran.  In one case they detained 50 people and charged them with illegal currency transactions.

 Forex Indifference to PMD

Anticipations were high that the closure of Iran’s nuclear dossier and the end of the controversial issue of the ‘Possible Military Dimension’ would help reduce foreign exchange rates in Iran. However, the rate remained unaffected by the news and surprised most observers.

On the reasons for forex market indifference towards the termination of the PMD, Ashrafi believes that “The market will no longer respond to news because only real measures can determine supply and demand.”  It was not clear what he meant by ‘real measures’ and who should take such measures.

He evaluated the recent decision by UN Security Council to close Iran’s nuclear case as positive for the country’s economy and political environment. However, he was of the opinion that “It will not affect foreign exchange rates in the market as it has to translate into tangible results.”

Reconnecting to the SWIFT interbank messaging service is an example of developments that can regulate flow of foreign currency into the market and consequently help lower the rates”, he was quoted as saying.