CBI Vows to Address Forex Policy Flaws

EghtesadOnline: The governor of the Central Bank of Iran acknowledged shortcomings in the government's new foreign exchange policy, promising that they would be addressed.

News ID: ۷۴۵۲۳۱

30 April 2018

Valiollah Seif, in his first TV appearance since the US dollar's exchange rate unification on April 10, also said the newly-launched Integrated Foreign Currency System (locally known as Nima) is not without flaws which, he said, were "extremely limited".

"About controls [or limits] to use foreign exchange, such as the €1,000 cap per trip, there will certainly be problems along the way," Seif said."For example, if someone wants to travel abroad more than once a year, they will most probably agree to buy foreign currency at higher rates."

The dramatic decision to unify the dollar's exchange rate at 42,000 rials was made in the wake of a sharp slide in the value of rial in the early days of the current fiscal year that began on March 21, according to Financial Tribune.

According to the measures, the US dollar for all purposes, including imports, travel, overseas students and research projects, will be offered by the government without limit at the same exchange rate.

The announcement was later followed by other measures approved by the Cabinet and subsequently notified by CBI.

It was decided, among other measures, that travel currency would be allocated only up to €1,000 or its equivalent in other currency once per year and €500 if the trip is made to a neighboring or allied country.

Also, according to the new rules, 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 should either deposit it in a bank or sell it to the banking system.

"All the potentials of Nima system have not come to the fore and we have not claimed that we will continue the plan as it is now. Howevere, currently the main issue is to solve foreign trade issues and other issues will also be resolved steadily," Seif was quoted as saying by CBI's website.

The CBI chief, however, said that while the remaining questions will be answered overtime, "major problems" have been solved and other minor issues will also be addressed.

The government's recent forex measures have received mixed reaction from the business community, with a majority saying that while transparency in the market is welcome, excessive forex controls are likely to backfire.

Through Nima, all foreign exchange transactions, including by individuals, companies, banks and currency exchangers, will be monitored and only "legitimate needs" will be provided for.

The bank's top policymaker, who also heads the decision-making body Money and Credit Council, doubled down on the announcement that trading in foreign currencies at any rate other than the official one would be considered contraband and that tax auditors will not accept any financial statement based on a rate higher than 42,000 rials.

In an odd comment, Seif criticized Iranians for making too many foreign trips, something that he said leads to capital flights and deals a blow to "the economic structure of the country".

"I'm not against making foreign trips but these trips should be at a standard and normal level," he said.

Non-Economic Reasons

Seif once again referred to the foreign exchange market volatility, saying that it had no "economic" justification.

"These non-economic reasons stem from tensions imposed on our economy from outside, including talks of suspension or resumption of sanctions," he said.

The CBI governor had in the past also blamed Iran’s foes and said, “Enemies beyond our borders, in various guises, are fueling this issue and are going to great lengths to make conditions tougher for the people.”

Seif expressed hope that Europeans would stick to Iran's nuclear deal signed in 2015, but said if JCPOA (as the deal is referred to by its initials) has no uses for Iran's economy, naturally there will be no reason to stay in the deal.

US President Donald Trump will decide by May 12 whether to restore US economic sanctions on Tehran, which would be a severe blow to the 2015 pact between Iran and six major powers.

Intro: The CBI chief said that while the remaining questions will be answered overtime, major problems have been solved and other minor issues will also be addressed.