Iran Parliament Briefed on Unified Forex Rates

"Our enemies have not been sitting idle and are trying to create imbalance in our economy by creating volatilities. International pressures and some limitations have not been without effect concerning the current [forex volatility] conditions, otherwise we have sufficient forex reserves," Seif was also quoted as saying by ISNA.

The CBI chief tried to calm angry MPs, reassured that everyone, including medical patients and students, will receive the required currencies, and said forex rates are to move "in proportion to economic indicators" so they might fluctuate by around 5-6% during the current Iranian year that began on March 21.

He also referred to an unprecedented rise in forex rates during the Norouz (Iranian New Year) holidays (March 16-April 6) as definitive proof that the rates did not go up because of economic reasons and speculative hype created on the streets and in social media was the culprit, Financial Tribune reported. 

Seif noted that he has spoken with Leader Seyyed Ayatollah Ali Khamenei about using euro as Iran's currency of choice in financial reporting and he has given the green light. 

The rate unification announcement was made by First Vice President Es'haq Jahangiri after an emergency Cabinet meeting chaired by President Hassan Rouhani was held to stem the rial's precipitous slide since the beginning of the current fiscal year on March 21.

But Jahangiri's announcement set the record straight when he announced the bold decision that harks back to the last currency crisis in 2012 when the then-CBI chief, Mahmoud Bahmani, unsuccessfully attempted to unify the exchange rate at 12,260 rials. But this time around, the CBI intends to let the rate have limited fluctuations in line with market mechanisms. 

"Under the current conditions, the country's exports stand at over $90 billion and annual imports at $50 billion," he said, adding that the country in some years enjoyed a surplus in its balance of payments amounting to $15-20 billion.

The vice president noted that an economy, which has always had a surplus foreign exchange, should not experience such volatility and this is unnatural. 

"Some say external forces are at work to destabilize the country's economy and others trace the volatility to machinations by domestic political factions," he said.

Elaborating on the government's drastic measures, he also spoke of some heavy-handed measures to ensure their effectiveness. 

According to Jahangiti, anyone found trading in US dollar at a rate higher than 42,000 rials would be prosecuted as a smuggler on a par with narcotics smuggling. 

Before the announcement on Monday, the rial had slid to a record low of 60,000 rials against the dollar on the unregulated market. 

CBI Announcement

As markets were still reeling from the announcement, CBI on Tuesday published more details about the measures, which included eight sections, saying that more information would be made public in the future. 

CBI noted that the possession of foreign exchange by individuals is allowed only up to a ceiling of €10,000 or its equivalent in other currencies and anyone possessing more than that amount has until April 20 to either deposit it in a bank or sell it to the banking system. 

The central bank further said all imports will take place as per purchase orders processed through the banking system. Another significant part deals with foreign exchange generated through exports, which must be converted to rial through legal channels unless they are used for imports by the same exporter or for repayment of debts. 

Majlis, Private Sector Oppose

The fallout from the government's decision was evident in the parliament through Tuesday. 

Mohammad Reza Pour-Ebrahimi, chairman of Majlis Economic Commission, expressed his strong dissatisfaction over the new measures, saying that a "fixed" exchange rate would have many consequences for the country. 

"In the plan [by Majlis] there is a proposal to establish a formal [currency] market and if Mr. Seif accepts this, then we will agree to his plan but if he wants to fix the exchange rate at a certain rate , this move will stoke demand in the market," he was quoted as saying by ICANA. 

The proposal also did not go well with the private sector that opposes government restrictions on the forex open market. 

Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, called on policymakers to take note of the fact that the foreign exchange rate itself is not the "cause" but rather "the effect" of other conditions in the economy. 

A survey by Iran Chamber of Commerce showed that most of these people have a dim view of the idea. 

Ferial Mostofi, the head of Investment Commission at the chamber, said the exchange rate of 42,000 rials would not be durable and that supply and demand should determine that. 

Abolfazl Roghani, the head of Majlis Industries Commission, also said that if the government had such a power to fix the exchange rate, it should have acted earlier. He considered it far-fetched that the exchange rate would remain as announced, unless it is propped up by a huge forex supply.