In recent years, Iran’s foreign exchange market has become a symbol of macroeconomic instability. Frequent currency fluctuations, multiple exchange rates, and a widening gap between official and market rates have eroded public trust and created deep structural distortions in the economy. These challenges underline an urgent need for a coherent and transparent exchange rate policy—one that restores confidence while addressing the country’s broader monetary and fiscal imbalances.
Today, Iran operates a complex multi-rate system, including preferential rates for essential goods, NIMA and SANA rates for official trade, and the open-market rate used by most private businesses. This fragmented structure has produced inefficiencies, rent-seeking, and corruption. Each time the gap between official and free-market rates widens, the government faces growing pressure to defend unrealistic prices, often at the expense of foreign reserves. The result is a market where investors face uncertainty, exporters lose competitiveness, and the Central Bank’s credibility is weakened.
A gradual transition toward a managed float offers a practical solution. Under this framework, the exchange rate would be guided by real supply and demand, while the Central Bank would intervene only to prevent sharp, destabilizing swings. Such a system strikes a balance between flexibility and stability—avoiding artificial price fixing without letting the market spiral out of control.
For this reform to succeed, three complementary steps are essential.
First, the gradual unification of exchange rates. Over a 12–18 month period, official and market rates should converge through transparent auctions and real-time disclosure of transactions. The preferential rate should be phased out, replaced by targeted cash transfers to protect low-income households.
Second, the management of volatility. The Central Bank should define a limited fluctuation band—say 5% above or below the average market rate—and focus on smoothing short-term shocks. New financial instruments, such as currency futures and foreign exchange bonds, can help businesses manage risk more effectively.
Third, stronger coordination between exchange rate, fiscal, and monetary policies. No exchange rate reform can last without budget discipline and inflation control. Ensuring operational independence for the Central Bank and curbing monetary financing of deficits are vital to building credibility.
A managed float would also produce broader economic benefits. Eliminating multiple rates would reduce rent-seeking, improve resource allocation, and boost transparency. Predictable exchange movements would support business planning and long-term investment. With less need for costly interventions, the Central Bank could preserve foreign reserves and focus on its core mandate of price stability.
Still, the transition will not be easy. Sanctions and restrictions on international transfers limit access to hard currency, requiring diversification of trade channels and greater use of regional and local currency arrangements. Success will depend on coordinated action among key institutions—the Central Bank, the Plan and Budget Organization, and the Ministry of Economy—as well as clear communication with the public. Transparency and consistent messaging can prevent speculation and ensure social support for reform.
Iran’s economy has reached a point where maintaining the current system is no longer viable. The multiple-rate regime has not stabilized prices; it has instead fueled inequality, corruption, and uncertainty. A carefully managed, market-based exchange rate—combined with fiscal discipline and social safeguards—can set the stage for a more stable, predictable, and trustworthy economic environment.
