Tehran Chamber of Commerce Doubles Down on Sound Forex Policies

By keeping the rial overvalued, the administration is in fact subsidizing foreign imports at the expense of domestic production, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture said, while criticizing the government’s foreign exchange policy again.

Addressing the 32nd monthly meeting of TCCIM, Masoud Khansari also recommended that foreign exchange be treated as a “commodity” whose rate is determined by the market and the role of government is limited to sporadic management and controls, TCCIMA’s website reported.

Iran uses a dual exchange rate system–an official rate and the other set by the market. While the Central Bank of Iran fixes the subsidized official rate, it also has a significant role in the market, since much of the foreign currency is generated through oil revenues.

Although CBI has begun to increase the official rate gradually, there is still a notable gap between the two.

“We have witnessed a surge in the exchange rate during the past month, but that is still not in line with the inflation rate and we expect the government to stop employing impractical measures to control the forex rate such as import bans,” he said.

Khansari compared the sharp plunge in the value of lira since Hassan Rouhani first became president in 2013 to the unchanged value of rial until recently, which he said was eroding the competitiveness of Iranian goods and services.

“Therefore, it’s natural that in the first half of the fiscal year to Sept. 22, imports from Turkey rose and 600,000 Iranians visited southern Turkey during that period,” he added.

The TCCIM chief attributed the loss of manufacturing and business sectors to the appreciation of the local currency.

Iran has suffered from high inflation for decades, but oil revenues have enabled policymakers to stabilize the exchange market. Therefore, rial depreciated much less than the inflation rate. The process has caused rial’s appreciation and weakened the competitiveness of non-oil sector. 

Officials, however, are also wary of any sudden jump in the exchange rate triggering a flight of bank deposits to the currency market and boosting speculative activities.

 Banking Bill    

Another central issue of the meeting was the hotly-debated banking reform bills, particularly the Central Bank Bill pending in the parliament.

The bill, which has reached Majlis after a tortuous path, has met with mixed reactions among pundits and observers. While some have called it a step forward in that it promotes the independence of the regulating body and grants it new roles such as inflation targeting, the private sector sees a diminished role for itself in the new structure.

Kourosh Parvizian, a member of TCCIM’s board of representatives and a banker, noted that compared to the original law passed over 40 years ago, the new bill fails to impress.  

“The private sector has been wiped out from  decision-making  in the new bill, which could lead to fewer rights for private businesses, besides weakening the alignment of CBI policies with other markets,” he said.   

Ali Sanginian, the head of TCCIM’s Money and Capital Commission, also expressed doubt that CBI, once the bill is approved, would  implement it anyway.

Sanginian, however, saw the greater independence of CBI as the bill’s strength.

The Banking Reform Bill outlines procedures for banks and non-bank credit institutions to follow for obtaining a license from CBI. It explains all banking operations and services, notifies regulations for the establishment of foreign bank branches and sets limits on their investments.

On the other hand, the Central Bank Bill, whose law was first passed in 1972, aims to update banking regulations. Improving the independence of CBI, enhancing monetary policymaking and enforcing CBI’s supervision over the money market are among its key goals.