Tehran Stock Exchange to Host Forex Trading

EghtesadOnline: After the government finally decided to recognize a "secondary" foreign exchange market where the US dollar can be traded at a rate other than the official unified rate of 42,000 rials, it is now certain that this market will be hosted by the stock market.

News ID: ۷۸۳۰۹۳

30 June 2018

Shapour Mohammadi, the head of Security and Exchange Organization, said on Wednesday that based on a mechanism that will be devised in coordination with the Central Bank of Iran, Industries Ministry and SEO, the foreign exchange generated by small exporters will be offered in the bourse at a rate determined by supply and demand.

"CBI and Industries Ministry will provide the list of exporters and importers online daily to the bourse so to that trade codes will be created for them," Mohammadi was quoted as saying by IBENA.

"After such a list is presented, SEO will be ready to launch the trading of export currency earnings."

According to Financial Tribune, the establishment of "secondary" market will become possible after President Hassan Rouhani finally agreed this week to recognize a free market rate other than the 42,000-rial rate that has been in use for over two months.

According to the measure, exporters that do not have to register their currency earnings in the online Integrated Forex Deals System (known as Nima) can sell their hard currency to importers of "non-essential" goods at "negotiated" exchange rates.

Although the negotiated rate could face some limits by the government, markets and businesses hope it will be closer to the unofficial market rate rather than the official unified rate.

Mohammadi told Fars News Agency that in the first stage, only exporters and importers will be allowed to trade in these "forex bonds" but later other traders could enter the scene.

According to the current multi-tier scheme, imports will receive their needed foreign currency at different rates, based on their priority where the least important class of imported goods, which the government has deemed "luxurious", will face an outright ban.

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

The next priority includes "raw materials and intermediate goods", the forex requirements of which will be met from the export earnings of petrochemicals, steels and mineral products.

The third category includes "consumer goods", the hard currency for which will be provided from exports that are not required to be registered in Nima. This is the group for which the government has chosen to exercise its free market mechanism.

Benign Effects

The decision to recognize an open market rate helped calm the forex and gold coin markets to a certain extent. On Wednesday, the rial continued to gain against the dollar with each dollar being traded at 78,000 rials, down from a high of 90,000 rials on Monday.

The gold coin is also on a declining trajectory after an unprecedented rally that has taken it to several all-time highs. The benchmark Bahar Azadi fetched 28.15 million rials ($670 at the official exchange rate) according to Tehran Gold and Jewelry Union's website.

The coin had reached an all-time high of 30 million rials on Sunday.

The volatility has been traced both to the government's mismanagement of the market and uncertainty over the future of Iran nuclear deal.

US President Donald Trump pulled out of the international nuclear deal with Iran 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.

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 an all-time low against the greenback.

The announcement was later followed by other measures approved by the Cabinet and subsequently notified by CBI.

However, the significant gap between the official rate and the black market rate led to a deluge of request for cheap currency, which the government failed to provide.