Economy, Business And Markets

MBRI Comfortable With Banks’ Forex Entry

MBRI Comfortable With Banks’ Forex Entry  MBRI Comfortable With Banks’ Forex Entry

The deputy head of the Monetary and Banking Research Institute rejected claims that the entry of banks in the open foreign exchange market could push them into unwanted and unhealthy market speculation -- a situation tried and tested in the past.

Kamran Nadri said that in the years of currency controls in place because of the international sanctions, the possibility of banks engaging in speculative activities had existed and for that reason all lenders were banned from entering the tempting hard currency market.  

“Because of the currency controls in previous years, a competition had emerged to buy as much foreign currency as possible,” Nadri told Tasnim News Agency.

“Because [during the sanctions] the banks had no real need for hard currency, they possibly wanted to enter the sector for speculative activities and that was why restrictions had been put in place for them,” he said without elaboration.

The CBI this week said commercial banks can now trade in the parallel foreign exchange market. The banks are allowed to buy foreign currency from their clients and trade with it at the market rate. Moreover, exporters also have the option to sell their forex revenues to banks or deposit them in their own bank accounts.

“Now that currency restrictions have eased, it is logical for banks to also trade in the currency market,” Nadri said.

Probably because oil prices have relatively improved and access to frozen assets made easier, the government’s forex reserves have increased, he said.

  Single Rate Aim  

Banks role in the foreign exchange market will not lead to monopolization and the naysayers and critics must back their argument with reason, Nadri stated.  

“All said, banks being allowed to trade in the forex market will lead to a more competitive and efficient forex rate.”

“It seems the Central Bank of Iran’s decision was right and timely and could be the first steps toward the unification of currency rates,” said the deputy chief of MBRI.

The economics professor disputed claims that the presence of banks in the market can and will push up currency rates and opined that the official currency market is pretty strong, “and requests for subsidized currency are still entertained by the regulator.”

The presence of new players in the market will not raise forex rates, “unless these new players – the banks – get inside information that would indicate major negative changes in the market. “Should that be the case (then) there is the possibility of a new competition emerging to buy hard currency that could lead to increased forex rates.”

According to Nadri, only a new round of sanctions or a dramatic decrease in oil prices can culminate in queues to buy foreign currency and by extension lead to higher forex rates. Under current circumstances “exchange rates will not rise as a result of new players entering the fold.”

In the current situation, he says, the number of buyers and sellers will gradually increase, leading to a more robust and efficient market. With the levelling of this crucial economic playing field “Exporters and traders will have an easier time because the bureaux de change will no longer have the monopoly on currency trade.”