Economy, Business And Markets

FDI Linked to Single Forex Rate

FDI Linked to Single Forex Rate FDI Linked to Single Forex Rate

A former governor of the Central Bank of Iran says unless exchange rates are unified, Iran’s markets would remain unattractive for foreign investors.

“Foreign companies are not likely to invest in a market with unstable exchange rates,” Tahmasb Mazaheri told the Eghtesadnews website on Friday.

 A single currency rate is a crucial policy issue that should have been dealt with earlier, but the CBI said it preferred to postpone it until the implementation of Iran’s nuclear agreement with the six world powers ( permanent members of the UN Security Council plus Germany) known as  Joint Comprehensive Plan of Action.

“Irrespective of the fact that the delay might have been the right thing to do, now it is crucial that the CBI put the process of exchange rate unification into practice over a six-month period,” he said.

Iran had to revert to a dual exchange rate system in 2012 after nuclear-related economic sanctions were intensified. Central bank officials had earlier said the single rate would hinge upon the lifting of sanctions. The economic and banking restrictions officially ended on January 16 when the International Atomic Energy Agency (IAEA) confirmed that Tehran had fully complied with the terms of the nuclear agreement.    

On critical exchange rate subject Mazaheri went on to say that the government and the CBI should not interfere in that process because that is the “function of market mechanisms.”

However, he cautioned that adopting a single rate may cause panic in the forex market, saying that the government and the CBI must gradually prepare the market for the transformation -- a measure that “would eliminate rent-seeking and smuggling of consumer goods.”

In recent months sources in and outside the country have often reflected on the forex rate complications. Almost all foreign banks, investment/insurance firms and businesses are of the opinion that the two-tier currency rate is a major obstacle to returning to the Iranian market.

The standing opinion is that most are not at all convinced about the security and future of their investments in a market with heavy forex fluctuations. The government has often said that it is aware of this overriding concern and would address it in the coming months as Tehran gets ready for a normal economic relationship with the outside world.