Central Bank of Iran: Market Can Meet All Forex Needs

EghtesadOnline: The Central Bank of Iran has urged people to meet their hard currency requirements through the established foreign exchange market, which consists of banks and certified exchange bureaux, announcing that it is preparing a framework to respond to all currency needs.

News ID: ۷۴۵۸۴۲

11 August 2018

In a statement published on CBI's website, the bank also warned people that purchasing hard currency from the unofficial market, including street dealers, involves risks and losses.

"The Central Bank of Iran is devising an operational plan for answering all the currency needs within the formal market," the bank said on Thursday.

"It is clear that when central bank's plans become operational, the foreign exchange market will be organized like other markets and more trade and investment opportunities will become available to all groups of people."

According to Financial Tribune, the bank also released a statement about the mechanism through which exchange rates are set. It referred people to Sanarate.ir, a website which had earlier been set up by CBI and quotes the average rates used in exchange shops.

CBI added that since the rates in the Sana system are based on finished deals, therefore they reflect the real exchange rates in the country and should be used as the rate of reference for businesses.

A look at Sana's rates onThursday–which marked the last trading day of the week–reveals that the US dollar's average exchange rate was 92,836 rials while euro was traded at 106,986 rials.

Reports from the unofficial market on Thursday suggested that exchange rates there were slightly higher than Sana's rates, with the US dollar being traded above the resistance level of 10,000 rials.

Market Forces

CBI, under it new governor Abdolnasser Hemmati, is trying to calm the volatile currency and gold markets through market mechanisms.

This week, it eased foreign exchange rules and allowed money exchangers to resume work at open market rates as part of the latest rescue package intended to calm the markets.

Hemmati has also said that that he hopes his bank will never have to interfere in the market that will "balance" by itself.

The recent moves come after the government decided to unify the US dollar's exchange rate at 42,000 rials on April 9 in response to volatility that saw the rial sink to all-time lows against the greenback.

At the time, it also banned the physical trade of hard currency by exchange shops and the trading of US dollar at any rate other than the official rate.

Criticism about the government's forex controls came to a head when reports of widespread abuse and rent-seeking were disclosed by the lucky few that had access to cheap currency.

It also caused demand for imports to skyrocket, leading to a subsequent decline in exports.

Hemmati has announced that the central bank would allow a “managed float” of the rial’s exchange rate and try to avoid using up its reserves to support the currency.

"My policy is to preserve the foreign exchange reserves of the central banks and it is expected that due to its depth, the secondary market will also affect other markets,” he said last week.

The expansion of secondary market will come through the currency earnings of petrochemical firms and steelmakers being injected into the market.

By removing the old four-tier classes of imports, Hemmati said, only the Ministry of Industries, Mining and Trade will decide which imports are essential for the country.

The volatility in markets intensified after US President Donald Trump announced in May that it is pulling his country out of the multilateral nuclear deal Iran signed with world powers in 2015.

On Tuesday, Washington reimposed sanctions on Iran’s purchase of US dollars, its trade in gold and precious metals and its dealings with coal and industrial software.

Sanctions also hit US imports of Iranian carpets and foodstuffs, as well as related financial transactions.