Gov’t Weighing Impact of Forex Measures on Trade

EghtesadOnline: The government is assessing the effect of unified exchange rates on the country’s exports and imports to find the best strategy for foreign trade, the head of Trade Promotion Organization of Iran told top exporters.

News ID: ۷۸۲۴۳۶

28 April 2018

Mojtaba Khosrotaj also referred to the government’s decision to impose an exchange rate of 42,000 rials for the US dollar and said a “managed floating” rate would soon replace it.

The meeting, which was attended by 100 of the country’s top exporters, focused on recent foreign exchange measures announced by the government, including controls on ways exporters can use their foreign currency earnings.

The new measures were announced on April 9 by First Vice President Es’haq Jahangiri after an emergency Cabinet meeting chaired by President Hassan Rouhani was held to stem the rial’s precipitous slide since the beginning of the current fiscal year on March 21, according to Financial Tribune.

He announced at the time that the US dollar for all purposes, including imports, travel, students and research projects, will be offered by the government without limit at the exchange rate of 42,000 rials.

The announcement was later followed by several other measures approved by the Cabinet and subsequently notified by the Central Bank of Iran.

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.

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 amount should either deposit it in a bank or sell it to the banking system.

According to Ahmad Araqchi, the CBI deputy for foreign exchange affairs, all importers should get their hard currency from the banking system and if banks face any difficulty in allocating the same, the duty will fall to certified exchange shops.

The Cabinet also ruled that all exporters are required to bring back their export earnings to the country’s “economic cycle” through procedures set by the central bank.

Exporters are required to sell their hard currency to the banking system or deposit it in domestic banks, which seems to have attracted the most heated arguments.

Anti-Corruption Move

As the controversy rages on among analysts about the efficacy of the government’s forex decision, Economy Minister Masoud Karbasian defended the measures. He stressed that the government’s new forex policy not only eliminates speculative behavior in the market, but would also end the rent-seeking resulting from the past dual-currency system.

Addressing an open session of the parliament on Sunday, the minister added that the exchange rate of 42,000 rial has been determined through “expert analysis” and that it would allow importers to purchase their needed raw material with “peace of mind”.

Karbasian also echoed President Hassan Rouhani’s words that the decision would act as a preemptive action against any possible move by the hostile US President Donald Trump on May 12.

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. He has pressured European allies to work with Washington to change the deal to his liking.

Euro Decision

In the wake of the government’s recent decision to use euro instead of the US dollar in official reports, Tasnim News Agency published a document on Monday showing the government requires state bodies to conduct their official reporting in both euro and dollar for two years and then shift entirely to the European currency.

President Hassan Rouhani’s administration last week officially discarded the US dollar as its currency of choice for financial reporting and opted for the euro.

As per the directive approved during a Cabinet meeting, all ministries and state-owned organizations and companies were obligated to divulge their official financial statistics, information and data using the euro.