Dollarization Revisited

EghtesadOnline: The phenomenon of dollarization has yet to emerge in Iran’s economy, i.e., the rial is still being used in transactions, though the daily increase in prices affected by the value of US dollar indicates a weaker form of this phenomenon.

News ID: ۷۵۲۴۹۹

08 May 2023

The phenomenon of dollarization has yet to emerge in Iran’s economy, i.e., the rial is still being used in transactions, though the daily increase in prices affected by the value of US dollar indicates a weaker form of this phenomenon.

Some government officials talk of cutting the umbilical cord of Iran’s economy from the dollar to solve this problem. In other words, as the dollar is the basis of pricing, the solution is to eliminate it altogether. But first, how do we sever this umbilical cord? And secondly, is the adjustment of prices with the value of dollar to blame for its impact on the lives of Iranians, or the weakness of policymaking that has led to economic instability and made economic players resort to this mode of pricing? Pouya Jabal-Ameli, an economist, prefaced an editorial for the Persian daily Donya-e-Eqtesad with these questions. A translation of the text follows:

In response to the first question, the government has mostly pursued two approaches. The first has been to price various products, from cars to raw materials, below the open market rate. These factory prices allow governments to claim that they have stopped a price increase. But they have given rise to huge rent-seeking practices, whose main beneficiaries are government and state institutions.