The Iranian government is streamlining its foreign exchange operations to help the central bank manage the foreign exchange rates, as low oil prices, coupled with ongoing sanctions on oil and banking, have strained its foreign exchange reserves.
“Non-oil foreign receipts now cover 70% of the government’s foreign exchange needs for imports,” the head of Export Guarantee Fund of Iran told state-owned IRNA.
“Using foreign receipts from non-oil sources lets some pressure off the central bank’s reserves,” Kamal Seyyed-Ali added on Monday.
Furthermore, the administration is limiting the variety of goods that can be imported at the official exchange rate, Valiollah Afkhamirad, deputy minister of industries, mines and trade, said on Sunday, Bourse Press reported.
During the 2011-12 currency crisis, caused by sanctions and state mismanagement, the rial lost over 60% of its value against all major currencies.
Since then, the central bank has run a multiple exchange rate regime. It has provided foreign exchange for certain imports at a steep discount to market exchange rates.
The US dollar edged up 0.14% to a two-year high of 36,800 rials, on Ferdowsi Street in central Tehran—the hub of foreign exchange trading—by 1040 GMT on Monday.
Meanwhile, CBI offered each greenback for 30,142 rials, unchanged for the day. The official rate is now 21.8% lower than the rate closer to market supply and demand.
The bank’s clout in keeping market rates at bay and offering a discount has been tied to the meager revenues it received from anemic oil sales and foreign receipts from exporters, some of whom were asked to cash their foreign exchange at the official rate offered by the central bank.
These days have been harder on the bank’s wallet. Oil revenues have fallen to a quarter of their $100 billion heydays in 2010, as oversupply and low demand hammered crude prices and oil sales were kept in check by sanctions.
It was fairly easy for the central bank to manipulate the value of the currency in the good old days when Iran was exporting up to 2.5 million barrels of crude oil at prices that climbed ever higher.
Oil prices fell as much as 35% in 2014 after a race to pump by Middle East crude producers and US shale oil drillers created an unprecedented global glut that may last the whole of 2016 to clear.
Global oil benchmark Brent and US crude’s West Texas Intermediate fell by double-digits for a second straight year, as Saudi Arabia and other members of the once-powerful Organization of Petroleum Exporting Countries again failed to boost oil prices.
With oil prices so low, the Iranian government is hiking taxes and working on ways to increase the efficiency of the multiple exchange rate system.
The country is awaiting the lifting of western sanctions in 2016, due to be removed under a nuclear deal reached in July before it can ramp up production and put some balm on its wounds.
Also, some $85 billion will be released to Iranian authorities, part of which will be used by the central bank to revert back to a managed float, as the bank’s governor Valiollah Seif promised countless times in the recent past.
