Editorial
Recent unrest in Iran triggered by sharp and repeated currency swings is a reminder that economic instability rarely exists in isolation. Exchange rate volatility may have lit the fuse, but the deeper causes of public frustration lie in persistent failures of governance that span economic, social and political spheres.
In Iran’s case, the currency market has once again exposed a structural problem: sound policies cannot deliver results when they operate within a flawed system of governance.
From an economic perspective, the dominance of multiple exchange rates has long been one of the most distortionary policies in place.
While often justified as a way to shield consumers from price hikes in essential goods, such arrangements almost inevitably breed corruption, rent-seeking and resource misallocation.
Over time, they create powerful vested interests determined to preserve the status quo. This helps explain why attempts to move toward a unified exchange rate, even when formally adopted, have repeatedly faltered or been only partially implemented.
The recent, incomplete rollout of exchange-rate unification illustrates this dilemma. In theory, the policy was correct and overdue. In practice, it was introduced amid heightened uncertainty, social tension and political constraints that undermined its effectiveness.
The question is not why a technically sound policy failed to calm the market, but why it was bound to struggle from the outset.
The answer lies in the broader framework of governance. Policymaking does not occur in a vacuum; it is shaped and limited by institutional realities.
When key economic levers are beyond the effective control of the executive branch, accountability is blurred and coordination breaks down. In such an environment, even the most well-designed reforms can be neutralized by parallel power structures and fragmented decision-making.
This is evident in the management of foreign exchange revenues. A significant share of oil export earnings does not flow transparently through the government budget, effectively creating parallel fiscal channels. The state is then expected to stabilize markets and control inflation without full command over its own resources. The contradiction is obvious: policy responsibility without policy authority.
Budgeting provides another example. Governments may adopt contractionary fiscal stances to rein in inflation, yet exemptions for certain institutions dilute the impact of austerity.
When some entities receive public funds without being subject to the same rules or oversight, fiscal discipline becomes selective and credibility erodes.
At the heart of these problems is a form of directive governance that prioritizes ad hoc decisions over rule-based systems. Such governance weakens responsibility, encourages risk aversion among officials and replaces clear legal standards with vague appeals to “expediency.”
Over time, this approach sidelines the concept of national interest, substituting it with short-term political balances and entrenched interests.
A durable solution requires more than technical fixes in currency or budget policy. It demands a shift toward governance rooted in the rule of law, transparency and equal application of rules.
Only within such a framework can economic policymaking regain credibility, stabilize expectations and ultimately serve the broader national interest rather than narrow, short-lived priorities.
