Economy, Business And Markets

Floating Exchange Rate Remains Ideal Choice

Floating Exchange Rate Remains Ideal Choice
Floating Exchange Rate Remains Ideal Choice

When foreign exchange rates are unified, setting a fixed rate for it will be meaningless since foreign exchange rates, like any other commodity, are determined by supply and demand, a member of Iran Chamber of Commerce, Industries, Mines and Agriculture said.

“If the forex rate follows a floating system, the market will set the rates, but fixing a rate for foreign exchange is like pulling a spring: the moment you let go of the pressure, the rates will bounce back,” Ferial Mostofi was also quoted as saying by IBENA.

In line with this, Valiollah Seif, the head of the Central Bank of Iran, said it is not the government’s policy to maintain a fixed forex regime but to make sure that the rates are determined by a balanced market condition and away from volatility. 

CBI has indicated that it will not be able to unify the country’s official and open market exchange rates by March 20, as previously planned.

Iran has been living with two exchange rates for the Iranian rial for several years, which has both helped fuel corruption and hampered cross-border trade. Those with ready access to the official rate have been able to benefit from relatively cheap hard currency, while other individuals and businesses have had to pay a higher price via the open market.

Unifying the rates has been one of the key goals of the Iranian government. However, while the gap between the official and open market rates has narrowed, they remain entrenched. 

The official exchange rate is currently 32,401 rials to the US dollar, while according to the Association of Bureau de Change Operators, the free market rate stands at 38,100 rials to the dollar.

CBI had earlier said it was aiming to have a single exchange rate by the end of the current Iranian year, which ends on March 20. However, Peyman Qorbani, a senior CBI official, told a press conference on February 19 that the continued lack of links between Iranian banks and their foreign counterparts meant it was unlikely to happen by the set date. 

It is not clear when CBI will close the gap between the two forex rates.

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