Seif Defends Forex Crackdown, as Public Confidence Soars

EghtesadOnline: Governor of the Central Bank of Iran Valiollah Seif defended this week's crackdown on the foreign exchange market to counter market disruptors, saying the move was in line with "global norms".

News ID: ۷۴۵۰۱۱

18 February 2018

"Countering economic disruptors is an accepted norm in the world. Therefore, CBI is collaborating with Law-Enforcement Forces that clamped down on foreign exchange disruptors," Seif was quoted as saying by CBI's official website during a conference on corporate governance in banks on Saturday.

On Wednesday, Law-Enforcement Forces, following a CBI green light, raided the hub of Tehran currency hawkers near the British Embassy in Tehran and arrested 90 traders who were deemed as market disruptors.

According to Tehran police chief, Brigadier General Hossein Rahimi, his forces also shut down 10 currency-trading exchangers as part of the crackdown, Financial Tribune reported.

Authorities have also closed the bank accounts of 775 people suspected of distorting the foreign exchange market with capital movements totaling 200 trillion rials ($4 billion).

"Unfortunately, some made incorrect analyses and saw this as a move to police the economic environment while they confronted anonymous people who inflict great harm on the economy," Seif said.

Iran's currency had lost a quarter of its value in six months, sliding to a record low of 49,000 last week. The authorities had said the causes are "non-economic and had to do with political sabotage directed by the White House".

US President Donald Trump has threatened to tear up a landmark 2015 nuclear deal signed between Iran and world powers, including Washington.

Meanwhile, the central bank announced that to encourage people to keep their money in rials rather than buying hard currency, it would ease the cap imposed in September on interest offered by lenders on deposits.

For the next two weeks, banks will be authorized to offer interest rates of up to 20% on fixed one-year deposits, against the previous 15%.

In another measure to stem demand for the greenback, the central bank offered the presale of gold coins at attractive prices.

The combination of measures has apparently shored public confidence and boosted the value of rial—it was changing hands at 46,970 to the dollar on Saturday, according to Tehran Gold and Jewelry Union's website.

Seif added that his bank is determined to fight economic corruption with the help of the judiciary and Law-Enforcement Forces.

But it was still a far cry from the 31,800 it was trading at the time President Hassan Rouhani took office in the summer of 2013. Many independent analysts had recommended that the government allow a gradual weakening of rial to forestall sudden currency shocks when CBI reserves take a hit.

The bank has also launched a new electronic system on Saturday to facilitate forex transactions and gradually move all trading to the platform to promote transparency in the market.

In order to stabilize the market, CBI also intends to issue foreign currency bonds. According to Seif, the currency bonds will be issued in rial but would be based on foreign exchange, meaning that one- or two-year treasury bonds will be bought by investors in rial but at the time of maturity the yields–at 4-4.5%– will be reimbursed in foreign currency or its equivalent in rial.

The exchange rate will be calculated at the average rate of the most recent week the bond has matured.

Mohammad Reza Pour-Ebrahimi, the head of Majlis Economic Commission, has announced that Majlis will form a special forex committee to monitor the situation.

Pour-Ebrahimi also called for greater supervision over the exchange shops, ICANA reported.