CBI Pushing for Rate Unification Despite Forex Volatility

EghtesadOnline: The Central Bank of Iran is working to fulfill the longstanding pledge of unifying the dual foreign exchange rates, despite recent volatility that unsettled the currency market.

News ID: ۷۴۵۰۹۰

04 March 2018

Valiollah Seif, the CBI chief, was also quoted as saying by ICANA, the news agency affiliated with the Iranian Parliament, that central bank aims to further reduce the number of goods eligible to receive official currency for ditching the dual forex regime.

The governor noted that in order to set the stage for implementing rate unification, banking relations should improve.

“The central bank and the Foreign Ministry have coordinated the promotion of the country’s banking relations and these efforts will continue. The CBI pays attention to these issues to facilitate access to international finance,” Financiat Tribune quoted him as saying.

Tehran has been hoping for swift reintegration into global trade after its nuclear deal with world powers in 2015. However, its failure to persuade western banks to accept its business has been one of the main obstacles preventing its return to global markets mainly due to US primary sanctions.

Iran currently uses two exchange rates: the free market rate, which currently stands at 44,700 rials to the US dollar, and an official exchange rate for state transactions fixed by CBI at 37,326 rials on Saturday, according to Tehran Gold and Jewelry Union’s website.

To bridge the gap between the two rates, the government began to gradually increase the official exchange rate for it to get closer to the unofficial market rate.

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

However, the recent fall in the value of rial seemed to have put the kybosh on those plans since a stable forex market is the main prerequisite for any single-rate system.

Authorities have repeatedly announced that a stable and strong rial is their first priority and that in adopting a single rate system, they would opt for a “controlled floating” system.

Having declined in value against the dollar through much of 2017, the rial lost a further 8% in January alone, as judged by the market rate.

The central bank has adopted a variety of tactics to bolster the rial, with reports in February of the detention of more than 90 currency traders, the closure of 10 exchange shops and the freezing of 1,300 bank accounts.

CBI authorities have also taken other measures to support the rial. They include allowing banks to offer one-year deposits with a 20% interest rate, 5 percentage points higher than the previous ceiling.

The central bank has also issued one- and two-year certificates of deposit based on rial, but with a value linked to the euro or dollar, and has been selling gold coins with six-month and one-year maturities at fixed and preferential rates.

Seif noted that his bank will continue to monitor suspicious forex transactions as part of efforts to instill forex market transparency.

The CBI had earlier announced that anti-money laundering rules such as know your customer controls are being implemented in the forex market and the recent crackdown on currency hawkers in the capital was a step in that direction.

In what appeared to be a fresh attempt to halt a slide in the value of rial, the government this week introduced new restrictions on the use of US dollar by blocking imports priced in that currency.