Iran to Dilute Dollar Role in Currency Basket in the Wake of Luxemburg Court Case

EghtesadOnline: The Central Bank of Iran has announced that it will continue to pursue plans to sideline the US dollar.

News ID: ۷۴۰۶۹۰

03 April 2017

The bank said in a statement that the country, in line with previous measures, will gradually reduce the role of greenback in its foreign exchange basket.

"Beginning from years ago and concurrent with the intensification of US sanctions against Iran, CBI strived to reduce the role of the US dollar in its currency basket, pursuing this goal gradually but steadily," read the statement published on CBI's official website in the early days of the Iranian New Year that began on March 21.

The reaction came on the heels of news last week that a Luxembourg judge has denied a request from Iran to annul claims by families of victims of the Sept. 11, 2001, attacks on $1.6 billion of Iranian assets in Luxembourg, saying a court had to rule on the fundamentals of the case first, according to Financial Tribune.

The assets Iran held with Luxembourg-based clearing house Clearstream were frozen as part of international sanctions over Iran's nuclear program and had in theory become available to Iran when those sanctions were lifted after a deal in 2015.

Stressing that this policy is still being pursued diligently, CBI noted that because oil revenues are priced in the US dollar, a sudden breakup with the greenback was not feasible.

However, adds the bank, a declining and the eventual ditching of the US dollar, whether "from the currency basket or as the currency of choice in financial reports", will not only reduce risks emanating from the [US] sanctions and international restrictions, but will also entail "significant financial and economic benefits".

Iran had sought an injunction to annul the seizure of the assets by the families of 9/11 victims who had won court cases against Iran in the United States.

In line with curbing the use of the greenback, Iran announced in late January that it will stop using the US dollar as its currency of choice in its financial and foreign exchange reports from the new fiscal year (which began on March 21).

Noting that Iran faces no limitations regarding other currencies, CBI Governor Valiollah Seif had hinted at the time that the country may opt for euro in releasing its key economic reports.

Again on Sunday, Seif commented on the fact that Iran's currency of choice for financial reports is to be changed from the US dollar to euro, but refused to officially confirm it.

"The currency that is to be replaced [with the greenback] must play a vital role in our country's exports and imports, and must have the necessary stability," he was quoted as saying by Mehr News Agency.

The CBI chief said the issue is still being reviewed by experts.

Not Binding Yet

In its latest announcement, the central bank emphasized that the judge's decision in the Luxembourg case is in no way an official recognition and adherence to US demands.

[The court ruling] is only "preliminary" and several provisions exist under Luxembourg laws to counter it such as "appealing to higher tribunals", the statement said, adding that CBI will employ them to a maximum extent with the assistance of the International Legal Department of the Presidential Office.

As a result of international sanctions, these assets "were practically blocked for years" and it was not possible to move them prior to this particular incident.

As CBI reiterates in its statement, these assets were purchased in the form of dollar-denominated bonds mainly during 1999-2007 under previous administrations. Since then, the bank has not purchased any of these instruments because "as a result of sanctions and the prohibition on U-turn transactions, CBI and other Iranian banks were not able to safeguard these bonds and even if this was possible, doing so would not have been advisable due to restrictions and risks associated with keeping dollar-denominated assets."

Echoing the views of Iranian officials such as Seif and Economy Minister Ali Tayyebnia on the Luxembourg case, CBI also decries the case against Iran as "a contravention of international rights and practices".