How much more is the local currency going to lose its value? This is a question weighing on Iranians’ minds these days. There is a crying need to know the response, we are approaching the end of the year [the Iranian year begins and ends late March] and markets are expected to change ever more. Government officials and the head of the central bank have yet to introduce a proper economic strategy to deal with the currency downtrend. Why is the economy and foreign exchange market in this poor state? Morteza Afqeh, an economist, prefaced his write-up for the Persian daily Etemad with this question. A translation of the text follows:
The most important strategy to overcome the current economic challenges is to end the sanctions by reviving the Joint Comprehensive Plan of Action [the formal name of the nuclear deal Iran signed with world powers in 2015].
Iran cannot resolve its fundamental economic problems without engaging with the world. As long as the sanctions are in place, reshuffling the Cabinet, the head of the central bank or changing policies will not have a significant and lasting effect on economic indices. When Mohammad Reza Farzin [the incumbent head of the Central Bank of Iran] replaced Ali Salehabadi, I predicted that the change would bring about a slight improvement in the short run, but the market will again see fluctuations and prices will increase. In fact, when a new head of the central bank comes to office, people wait for any sign of a real change. But after some time, when there is no sign of an end to the sanctions, demand increases again.
The head of the central bank announced on Monday that a part of Iran’s blocked dollars has been released, which the government has injected into the market. His comments, if true, suggest that despite the injection of these dollars, Iran’s markets have not been able to allay concerns regarding the future and the continuation of sanctions. Therefore, the demand sector has strengthened as much as the supply sector and the market has risen again.
I believe that if the government fails to take urgent action, the foreign currency exchange rates will increase again as we get closer to the Iranian New Year holidays.
Farzin also spoke of players who were trying to destabilize the forex market and create incremental impulses. This is a bitter confession of inability.
It is sad that the central bank of an oil-rich country, which claims to have registered tens of billions of dollars worth of exports, gives up in the face of a couple of brokers. I believe that these statements are the signs of resorting to red herrings and misleading speech.
The head of the central bank appears to be attempting to buy time. But this crisis will not go away with such unprincipled and unscientific methods.
To put the economy in order, the government needs to first get the sanctions lifted, develop relations with the world and then introduce reforms to the economic decision-making system; there is no other way.