Why Iran moved to unify dual exchange rates

Al Monitor | : In an abrupt move, Iran moved to unify its dual exchange rates — one official and the other the free market rate — on April 11 to prevent further depreciation of the rial, re-establish the currency’s stability and empower banks. Why at that time, and how successful will the move be? The short answer seems to be that it was the only viable option under the circumstances. The sustainability of the move will depend on the ability of authorities to control the market in coming months.

Exchange rate unification has been a long-standing promise and long-sought policy of President Hassan Rouhani’s administration. Indeed, Valiollah Seif, head of the Central Bank of the Islamic Republic of Iran (CBI), had on multiple occasions set deadlines for its implementation. Rate unification was considered, however, to be contingent on a resumption of international banking ties, which failed to materialize as hoped by Iran following the implementation of the nuclear deal in January 2016.

The rial’s plunge was fueled by Iranians’ wish to either protect assets or profit by betting against the currency, which earlier this month dropped to an all-time low of 60,000 rials against the US dollar. The greenback traded for 36,000 in mid-September, signifying a decline of more than 60%. With the rate unification, the dollar is now set at 42,000 rials, but the rate will not remain fixedaccording to Seif, who has also referred to rate unification as the “best decision at this time.”

“Based on the conditions that had formed in the market, forex rates were being set with limited banknotes as actual deals were scant,” Kamal Seyyed Ali, director of the Export Guarantee Fund of Iran, told Al-Monitor. “The price hike was not logical because the CBI was not injecting currency into the market.”

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