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Middle East
Iran imposes currency cap to boost rial
Most money changers refuse to comply with government's demand for a fixed dollar rate to reverse currency collapse.
Last Modified: 07 Oct 2012 09:12
Under pressure from economic sanctions, the rial hit a record low of around 37,500 to the US dollar last Tuesday [EPA]

Iran has imposed a fixed dollar rate in a bid to reverse a collapse of its currency, days after protests erupted over the rial's plunge on the open market.

The order on Saturday came as ordinary Iranians struggled with growing economic problems that caused a big jump in daily prices.

Iranian news agencies reported that the government's new foreign exchange centre, used by importers of some basic goods, was selling US dollars at a rate of 25,970 rials.

"We received an order from the Money Changers' Association [under the control of the Central Bank] telling us to buy the dollar at 25,000 rials and sell at 26,000," one exchange bureau employee told the AFP news agency.

"Nobody is selling at this price and we are not trading," he said on Saturday.

Violent protests

The bureaux in the central Ferdowsi area of Tehran were open for the first time since Wednesday's protests, in which scuffles broke out between police and stone-throwing individuals.

The state-linked news agencies, as well as Iranian currency-tracking website Mesghal, said the rial was trading in the free market at 28,500, much stronger than levels near 37,500 early in the week.

But dealers in Tehran and Dubai, a major centre for business with Iran, told the Reuters news agency there was almost no trade in the free market because rates indicated by state media were not commonly accepted.

The mass of Iranians obtain hard currency for business and foreign travel, and to protect their savings against inflation which is widely believed to be running above 25 per cent, from the free market.

Money changers in Tehran "tell us not even to call them to ask the price of currency. They say they are not giving rates," a merchant in the capital said by telephone. He declined to be named because of the political sensitivity of the issue.

A message on Mazanex, an Iranian currency-tracking website, read: "Unfortunately we still cannot access rates to cite for the domestic market."

The website of SarafiJalali.com, a Tehran-based money changer, said: "To comply with the policies of the Central Bank of the Islamic Republic of Iran, and to help organise the currency market of Iran, Sarafi Jalali for now will not announce any rates. Subject to permission from the central bank, the announcement of a new rate will be made." It did not elaborate.

Western sanctions

Under pressure from Western economic sanctions against Iran, the rial hit a record low of around 37,500 to the US dollar last Tuesday, losing about a third of its value in 10 days.

The slide prompted anti-government demonstrations near Tehran's Grand Bazaar as police arrested money changers whom authorities accused of speculating against the currency.

Most free market trade of the rial in Tehran and Dubai then ground to a halt because dealers feared being targeted by police for quoting rates that displeased the government, and because of the huge financial risks of trading such a volatile currency.

If the free market in currencies stays frozen, Iranians may become unable to conduct businesses that involve imports, while foreign travel and study abroad may be curtailed. This could increase discontent with the government's economic management.

President Mahmoud Ahmadinejad has put the blame of the currency collapse on the economic sanctions. But his hardline critics say the fault mostly lies with his government's monetary policies.

The US government has said sanctions relief could quickly occur if Tehran curbed its disputed nuclear programme, which Western countries suspect is cover to develop a nuclear weapons capability.

Iran's leaders, who insist their atomic programme is exclusively peaceful in nature, have vowed never to yield to the pressure.

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Source:
Agencies
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