Economy, Business And Markets

Single Currency Rate Deserves Priority

Single Currency Rate Deserves PrioritySingle Currency Rate Deserves Priority

The foreign exchange market is one sector of the Iranian economy almost always affected by economic and political upheavals. Similarly, it exercises a major influence over key economic indicators such as the inflation rate, production and exports. It has been three years since the market experienced wild gyrations before settling in relative stability, thanks in large part to the economic policies of President Hassan Rouhani who took office in the summer of 2013.   

In a talk with Tehran’s Chamber of Commerce, Industries, Mines and Agriculture’s monthly magazine, the CEO of Export Guarantee Fund of Iran, Kamal Seyyed Ali shared his views on the key issues related to the currency market.

“A key issue is the unification of forex rates. The government and the Central Bank of Iran should not hesitate in unifying the rates,” he said. He elaborated by saying that the single rate plan is necessary as it helps put an end to rent-seeking, augurs well for transparency and facilitates foreign investment into the country.

According to Seyyed Ali another hurdle in the way of rate unification is the lack of sufficient correspondent banking relations with foreign lenders. “Furthermore we are not able to deal in the US dollar and this makes the single rate project more difficult.”

 Not by Decree

Asked about the current situation of the currency market, the senior official said the market is stable for the time being and added that the CBI should take effective measures in dealing with the forex market.

 “However, we should not try to stabilize the forex market by decree. Such actions are dangerous and could lead to a sudden increase in currency rates.”

He recommended the government to opt for “floating but managed” exchange rates.

On the effect of the plunge in international oil prices on the forex market, Seyyed Ali said it forces the government to spend more of its foreign exchange reserves. “Withdrawing from the foreign currency reserves is not a good idea, but if the CBI cannot manage to keep the pressure off the market forex rates may rise.”

The former deputy of the CBI’s forex department noted that the lifting of sanctions and normalizing relations with the outside world can and should help maintain the present stability in the forex market.

Pointing to the recent decline in the USD exchange rate, Seyyed Ali said it could ultimately harm Iranian export, and opined that further decline in the foreign exchange rate would in effect undermine exports in 2017.

Iran was forced to revert to the controversial double exchange rate regime after nuclear-related sanctions caused unprecedented turmoil in the forex market in 2011-12 in which the national currency lost almost 70% of its value within days. The government and CBI officials have said they intend to introduce a “floating,” yet “managed” exchange rate regime by October.