Economy, Business And Markets

LCs Allowed at Market Exchange Rates

LCs Allowed at Market Exchange Rates LCs Allowed at Market Exchange Rates

The Central Bank of Iran has permitted banks to open letters of credits in foreign currencies at market exchange rate.

“The permission comes after CBI’s recent decree allowed banks to trade foreign currencies at the market rate and is in line with plans for unification of forex rates,” Razi Aqamiri, a member of Government and Private Sector’s Dialogue Council, was quoted as saying by Mehr News Agency on Wednesday.

“However, the permission is currently only granted for LCs in the industrial sector,” he added.

In late July, the Central Bank of Iran allowed commercial banks 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.    

“As far as we know, the government is planning to use the average of market and official forex rates as the base for the single rate,” Aqamiri said. “But this would lower the market rates, which is against the government’s plans for promoting [non-oil] exports.

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.

The 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.