The Central Bank of Iran said Thursday commercial banks will soon be allowed to trade in the parallel foreign exchange market, as part of the initiative to scrap the dual exchange rates and move toward a floating currency regime.
CBI governor, Valiollah Seif, who has announced plans to unify exchange rates before the fiscal year ends in March, said banks will be allowed to buy foreign currency from their clients and trade with it at the market rate.
“Moreover, exporters will also be allowed to sell their forex revenues to banks or deposit them in their bank accounts,” he said, the CBI website reported.
Speaking in the holy city of Mashhad in Khorasan Razavi Province, Seif reiterated his pledge that exchange rates would be unified before the year is out in March 2017.
Based on a recent directive from tax authorities, profits made from the difference between transactions at the official forex rate and the market rate for exporters will be exempt from tax.
Iran was forced to revert to the controversial double exchange rate regime after nuclear-related sanctions unleashed turmoil in the forex market in 2011-12 in which the national currency lost almost 70% of its value within days.
Unification of forex rates is considered a crucial requirement for the reintegration of Iran into the global banking system and payment networks. The private sector has also been calling for unification of forex rates mainly to eliminate rent-seeking and corruption.
Fostering Economy
On the oft-mentioned issue of expanding credit to struggling industries, Seif called on provincial officials to do their best in identifying the businesses ion need, so that the banks “limited resources would not be squandered.”
The Ministry of Industries, Mining and Trade, and special taskforces in provinces have been tasked by the government to list needy businesses in need of credit from the banking sector, in an attempt to help pull the economy out of the long and painful recession.
“Banks will not ignore their core banking business. Loans will be allocated only to enterprises that are able to repay.” Almost all banks are saddled with billions of dollars in troubled credit while companies are buried under high interest rates and low profitability.
Hasty plans for financing businesses and forcing banks to lend without sufficient collateral during the previous administration resulted in the huge non-performing loans It is said that, NPLs now account for 45% of lenders’ total assets.
Seif also referred to the government’s plan for implementing reforms in the banking sector and overhaul the inefficient and lethargic financial sector.”
“Once [the overhaul plan] is implemented, capital markets will restart financing businesses and banks will no longer shoulder the financing task alone,” he added.
Officials have unveiled plans for the capital market to finance long-term projects and thereby take the pressure off the banking sector–which now finances over 90% of the economy.
The government has long been trying to dispel misconceptions about the banking system, according to Seif, in order to "put the financial and monetary system on the right track.”
