Tenuous Dollar Role Merits Shift to Other Currencies

EghtesadOnline: A Central Bank of Iran official has denied any downside resulting from the country's decision to ditch the US dollar in its official statements, saying the minor role of the greenback in Iran's currency basket justifies the decision.

News ID: ۷۷۶۹۰۵

11 June 2017

"In general, the base currency of financial reporting must feature in a majority of foreign transactions and have a significant share in the foreign exchange resources of the country," Mehdi Kasraei-Pour, CBI's deputy for foreign exchange policies and regulations, told IRNA.

"Since foreign exchange revenues and hard currency needed for imports are in a variety of currencies in which greenback has a meager share, the change in the currency of choice for financial statements will not have an impact on the country's economy."

Late January, CBI Governor Valiollah Seif announced that Iran will stop using the US dollar as its currency of choice in its financial and foreign exchange reports from the current fiscal year (started March 21), giving strong hints that the country may opt for euro in releasing its economic reports, Financial Tribune reported.

CBI in April announced that in line with measures launched years ago, it will continue to gradually reduce the greenback's role in its foreign exchange basket.

According to Kasraei-Pour, the US dollar has lost its status to count as the main currency of choice for official statements.

As a result of persisting non-nuclear sanctions imposed on Iran decades ago, which prohibit the country from engaging in any kind of transactions that go through the American financial system, "the US currency cannot be used in international transactions of the Iranian banking system and has no place in the basket of forex resources of the central bank".

Kasraei-Pour stressed that as the bulk of transactions in the economy are done through other credible currencies, there is no justification for using the US dollar.

"Therefore, selecting another currency that boasts international stability and credibility and also plays a major part in our foreign trade can be considered a substitute for the greenback without having an impact on economic conditions," he added.

On individuals preferences toward keeping the dollar, the official said gradually and "with long-term planning", people will change their habits.

Minimal Impact

Asked whether the change in the currency of choice will have an impact on Iran's foreign exchange holdings in other countries, the CBI deputy said it will have no impact whatsoever.

The reason behind the insignificance, he adds, is that the dollar's share in the country's forex reserves has drastically reduced, in a way that "it does not constitute more than 8% of the reserves on average".

Kasraei-Pour also shot down any possibility of the country's accounting procedures undergoing any significant changes, pointing out that Iran's accounting system is based on rial and "all forex transactions are also recorded in rial in official accounts and financial reports after being exchanged ".

On the possibility of pegging rial against a basket of currencies, the official said inclusive studies were done on the matter in 2002-04 "and the basket was used until 2011 when we faced a currency crisis".

Therefore, he adds, determining a basket of currencies and calculating rial based on that basket is also currently being used, but other factors such as economic changes must also be reviewed in this regard.

In 2011, the Iranian currency went into a free fall and lost almost 70% of its value.

Kasraei-Pour gave assurances that the change in the currency of choice for financial reporting will not impact exchange rates because traditionally, "the focus of demand in the country for the dollar has to do with travel, students studying abroad and medical purposes, which means the dominance of greenback can gradually subside".