![]() On the one hand, sanctions have increased his transaction costs significantly, and on the other hand, the Iranian government wipes off his profits by forcing him to accept a lower exchange rate.Īt the same time, any Iranian exporter needs hard currency to import materials and equipment. When his hard-earned money arrives, then he is supposed to sell it via NIMA, where he receives 20% to 25% fewer rials compared to the free market. He cannot transfer the money back home legally using banking channels. Thus, he is forced to deposit his earnings abroad, bringing them back home as circumstances permit. When he finally delivers his merchandise, he is at the mercy of his buyers to pay him, in a world where everyone knows of the price and the penalty of doing business with Iran. ![]() However, if the currency exchange regime in Iran is designed to reward the importers for lowering the domestic prices, it punishes the exporters cruelly.Īn Iranian exporter must weather sanctions, negotiate his path through different government agencies while remaining wary of any company owned by a public or military entity entering his industry. He pays 20% to 25% below the free market rate and benefits from a profit margin just because of the discrepancy between the free market and NIMA. Now, even if the importer does not have the proper links, he can buy a portion or all of the currency he needs via NIMA. Thus, the importer pockets a profit of 500% just by having the right connections to buy dollars at the 42,000 IRR/USD rate. Whatever he imports reaches the end user at free market prices. One does not need an economist to highlight the opportunities for rent-seeking and corruption.Īn importer will do his utmost to receive all or a portion of the hard currency he needs at the official rate, which is one-sixth of the free market exchange. ![]() To all of these, one has to add the official exchange rate of 42,000 IRR/USD, at which the Central Bank of Iran (CBI) will sell hard currency to those who are importing necessities, including food, grain and medical supplies. In SANA, the exchange rate stands at 228,149 IRR/USD. Then there is SANA where the currency exchangers are required to register all of their trades and the exchange rate they have used. Iranian exporters are required to sell their hard currency in this market, where the exchange rate stands at 184,450 IRR/USD, a decent 20% below the open market rate. There is NIMA, which is the abbreviation for Currency Exchange Unified System. While the Iranian authorities are blaming exporters for the recent fall in the value of the rial, one has to point out that the currency exchange market in Iran favors imports and discourages exports.Īt the time of writing this article, the exchange rate for the rial versus the US dollar stands at 230,940 IRR/USD in Tehran's free exchange market, according to The exchange rate in Herat, Afghanistan, is 247,200 IRR/USD, and in Sulaimaniyah, Iraq, it stands at 254,600 IRR/USD. As a result of this policy, the currency exchange market in Iran is a fractured multilayered singularity, including several submarkets offering ample opportunities for corruption. Consecutive administrations have adopted this approach for the past 40 years, and it has never lowered the inflation rate. ![]() In other words, the Iranian government believes if it sets the exchange rate, it is controlling domestic prices. Believing in the myth that if it controls hard currency resources and manipulates the currency exchange rate, it can restrain inflation. The Iranian government is utterly reluctant to adopt a single currency exchange market it has divided the markets and created a puzzling bureaucratic labyrinth when it comes to exchanging currency. As the Iranian government refuses to learn from the past and the present episodes, it is doomed to repeat history. The Iranian authorities and policymakers always search for an individual or a group of individuals to blame for the unfolding crisis, since their adopted macroeconomic policies and monetary measures remain irreproachable. ![]() However, the government’s response to the increased ambiguity and volatility cycles remains the same. The volatility cycles have become a frequent event in Iran’s economy, and no one finds them surprising. The currency exchange market in Iran is experiencing another volatility cycle with the Iranian rial (IRR), losing its value repetitively against foreign currency. ![]()
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