The recent ruling by the Central Bank of Iran allowing banks to engage in foreign exchange trade in the open market has provoked the ire of bureaux de change operators who claim banks will have an unfair advantage.
“The very first issue is the levying of value-added tax on money exchange shops which increases the cost of money transactions for them and puts them at a disadvantage when it comes to competing with banks,” said Saeed Mojtahedi, the head of the Association of Bureaux de Change Operators, ILNA reported.
The CBI on Sunday officially permitted banks to start trading in the open hard currency market in line with its declared aim to unify foreign exchange rates. The directive allows banks and customers to negotiate the rates. Before the CBI decision, forex trade in the parallel market was the sole premise of the powerful bureaux de change and street money changers.
As part of the new provision, banks can buy hard currency from clients and trade with it at the open market rate. Moreover, exporters also have the option to sell their forex revenues to banks or deposit them in their own bank accounts.
The deputy head of the Monetary and Banking Research Institute earlier rejected claims that the entry of banks in the open foreign exchange market could push them into unhealthy market speculation. Kamran Nadri said banks’ role in the foreign exchange market will not lead to monopolization and challenged critics to back their argument with valid reason.
Contrary to money changers’ objections, Nadri claimed that banks being allowed to trade in the forex market will lead to “competitive and efficient forex rates.”
Referring to the sanctions years when Iran was virtually cut off from the global financial systems, Mojtahedi recalled that bureaux de change had strived to bypass the embargo. “The money exchangers were dealing via alternative methods to help people have access to the necessary (imported) goods and medicine.”
The parliament passed a law in May, exempting money exchange shops from paying VAT. The law, however, is pending the final approval of the Guardian Council, a constitutional watchdog with the ultimate authority to endorse or veto any law passed by lawmakers.
“Besides, we also have to cope with the black market currency traders as another challenge,” he said referring to street currency traders which are centered in Tehran’s Ferdowsi Street.
Mojtahedi noted that the government’s policy to unify forex rates is important as it also “promotes stability in the hard currency market.”
“Money changers have proved themselves to be reliable players in the money market and may be the country could need their help in the future.”
Iran has been using a dual exchange rate system since 2012 when international economic and banking restrictions were tightened over the nuclear program. Governor of the CBI, Valiollah Seif has pledged to introduce a floating forex regime by the end of the Iranian fiscal year in March 2017.
