Iran Gov’t Mulling Creation of Forex Open Market

EghtesadOnline: The government has agreed to consider a business community proposal to recognize a "secondary" foreign exchange market where rates are determined by supply-demand mechanism.

News ID: ۷۴۵۵۱۷

24 June 2018

According to Gholamhossein Shafei, president of Iran Chamber of Commerce, Industries, Mines and Agriculture, said on Saturday the private sector has proposed the creation of an open currency market that the government has accepted and is taking measures to fulfill it.

"A committee has been set up at ICCIMA and the private sector has announced its views in this regard to the decision-makers," Shafei was also quoted as saying by IBENA.

The business community has repeatedly declared that a stable forex market is among its biggest concerns. Despite calls for a unified forex rate, the private sector has taken a dim view of the exchange rate of 42,000 rials for the US dollar enforced in April, regarding it as unrealistic, Financial Tribune reported.

Back then, the government abruptly unified the exchange rate in response to a rapidly depreciating rial against the greenback.  It has since banned the physical trade of foreign currencies by exchange shops and made any trading in other than the official rate illegal.

Recently, however, the government has returned to the old policy of prioritizing forex allocation to imports and putting outright bans on others in preparation for the possible fallout of the US move in pulling out of the Iran nuclear deal.

Based on the new decision, foreign exchange will only be allocated to goods branded as either "essential or vital," "raw materials and intermediate goods", or "goods with lower priority."

According to the Islamic Republic of Iran Customs Administration, the list for "essential" goods, which includes staples such as oil, rice and wheat, will receive their dollar needs from oil revenues at the 42,000-rial rate, which would be further subsidized to 38,000 rials.

The next priority goods will be imported from the export earnings of petrochemical, steel and mineral products at the exchange rate of 42,000 rials.

The third category includes "consumer products," for which hard currency will be provided from exports that are not required to be registered in Nima–the central bank's Integrated Forex Deal System.

According to IRIC, these goods will receive their hard currency at the rate of 42,000 rials plus the price mentioned in the export declaration forms that will be negotiated between the exporter and importer.

Asked about the decision on Saturday, Shafei said the private sector agrees with the fact that cheap currency should only be allocated to essential goods such as medicine, strategic goods and medical equipment because if the 42,000-rial rate is allocated to all goods, the country's forex reserves would face problems in the future.

While the forex rally in the black market continued on Saturday–with rial briefly being traded for 80,000 rials against the dollar–local media reports said the government has banned the import of 1,339 goods. Tasnim News Agency reported that cars are also included on the ban list.

In a fresh gold coin rally, the benchmark Bahar Azadi recorded another all-time high on Saturday. According to Tehran Gold and Jewelry Union's website, Azadi gold coin was up 3.33% on Saturday and fetched 26.81 million rials ($638 at the official exchange rate.)

US President Donald Trump pulled out of the international nuclear deal with Iran—formally known as the Joint Comprehensive Plan of Action—on May 8 and said he would reimpose sanctions within 180 days, prompting several European companies to announce they would end business with Tehran before the Nov. 4 deadline.