Unregulated Forex Trading Under Judicial Scrutiny

Abbas Jafari Dolatabadi added that the turnover of these accounts totaled 60 trillion rials ($1.33 billion). He added that 27 currency traders have been referred to the Prosecutor's Office by the Police and Intelligence Ministry, according to Financial Tribune. 

"Measures by police and relevant bodies have continued in accordance with the law to round up people who engage in unregulated forex trade," Dolatabadi was quoted as saying by IBENA. 

The official hoped that following the continuance of these measures, "we will soon witness good things in the foreign exchange market". 

CBI measures along with the heavy-handed approach by the judiciary have worked to calm the market and strengthen the rial. On Tuesday, the rial was traded at 44,740 to the dollar according to Tehran Gold and Jewelry Union's website.    

The crackdown on the illegal currency trade began two weeks ago at the height of the foreign exchange market volatility that saw rial sink to an all-time low of 49,000 to the dollar. 

At the time, Tehran Police, with a green light from the Central Bank of Iran, raided the hub of Tehran currency hawkers near the British Embassy in Tehran and rounded up 90 traders who were deemed as market disruptors. 

CBI Governor Valiollah Seif defended the crackdown and said the move was in line with "global norms". 

Seif later announced that anti-money laundering rules such as KYC controls are being implemented in the forex market and the recent crackdown on currency hawkers in the capital was a step in this direction. 

The governor added that these currency traders were part of the underground economy since in their trading, no National Identification Number was being used.  

Iran operates two exchange rates: a free market rate and an official rate set by the central bank and used for some state transactions.

The dual currency system and lack of a formal currency futures market have led to a parallel foreign exchange market that includes foreign-exchange offices licensed by the central bank and many unregulated ones, including street traders. 

In December 2016, CBI authorized banks to deal in foreign exchange trading at a free-market rate as part of its moves to unify exchange rates.

The central bank has raised the official rate gradually to shrink the gap between the two rates. It has said it wants to unify the exchange rate, to make the economy more efficient and create a level field for private firms competing with state institutions with access to cheaper foreign exchange.

The recent forex market volatility, however, has dampened the enthusiasm for any rate unification as investors scrambled to the safe haven market. 

As part of other measures to stabilize the market, banks have been authorized for two weeks to offer interest rates of up to 20% on fixed one-year deposits, against the previous 15%. 

Stopgap Measures 

On his official channel on popular messaging app on Telegram, Seif this week responded to criticism that his bank is turning his back on its own policy of monetary easing and said the move is only a temporary strategy to stabilize the market and things will later go back to normal. 

On Tuesday, he announced that banks sold $22.5 billion worth of fixed one-year bonds in local currency in just one week after CBI allowed one-year bonds at 20% interest. 

At a press conference on Tuesday, Government Spokesman Mohammad Baqer Nobakht announced that the bonds have been issued to shore up the national currency. He noted that the government supports a stronger rial even if it means that the central bank would foot the bill. 

The spokesman added that once the two-week bond issuance period ends on Saturday, the government will issue its participatory bonds at 20% yields to fund infrastructure projects.