Iran's Secondary Forex Trade Starts as Exchangers Remain on Hold

EghtesadOnline: The long-expected secondary foreign exchange market officially commenced work while exchange bureaus remain barred from physical trading in hard currency.

News ID: ۷۸۳۱۷۶

07 July 2018

Governor of the Central Bank of Iran Valiollah Seif told reporters on Wednesday that the market has started trading at negotiated rates, but dismissed reports suggesting that exchange shops will also regain their former status from Saturday.

"Exchange shops are active and do their business in the area of foreign exchange hawalas but a decision about whether they can trade in physical currency will be announced at a later time," Seif was quoted as saying by the official news agency IRNA.

Asked what role exchangers would play in the newly-launched secondary market, Seif said moneychangers could act as intermediaries between exporters and importers, Financial Tribune reported.

After it decided to unify the US dollar's exchange rate at 42,000 rials in the midst of the national currency's sharp depreciation, the government imposed strict forex controls, including a ban on the trade of US dollar outside the banking system, including by exchange shops.

The acceptance of the forex trade at "negotiated rates" finally came after the government was unable to meet the tsunami of demand for imports at the attractive subsidized rate. The news has been welcomed by markets long suffocated by forex restrictions, with reports suggesting that the rial was being traded at around 80,000 rials to the dollar up from 82,000 rials on Tuesday in the unofficial market.

The gold coin, which has also kept an intense rally in tandem with foreign exchange rates, lost more ground with the benchmark Bahar Azadi  fetching 28.73 million rials ($ 684 at the official exchange rate), after having touched the all-time high of 30 million rials ($714 ) two days ago.

Seif also emphasized the fact that forex trade at negotiated rates would only involve export earnings from 20% of non-oil exports, which do not include petrochemical forex earnings or currency generated by steel and mineral exports.

"With a boom in this market, ambiguities around it will also gradually subside," he said.

Seif noted that the secondary market would initially be used for the import of goods and services, but will later be tapped for other purposes.

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

In the third category, 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" consumer goods at "negotiated" rates in the bourse.

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.

More Disclosures

The unified rate has been criticized for creating a fertile ground for rent seeking whereby a select few gets access to cheap currency for imports.

In keeping with its campaign to instill transparency in forex allocation, CBI published the list of car importers that had received cheap currency on Tuesday.

The list followed an earlier disclosure that involved the names of smaller importers who had benefited from cheap currency but did not honor their commitment to treat customers fairly.

The car importers' list, for instance, shows that these traders have received €121 million in cheap currency which, by accounting the difference with the open market rate, shows that the import of expensive foreign cars has been massively subsidized by the government.

Tehran Police Chief Brigadier General Hossein Rahimi announced on Wednesday that his forces have ascertained that mobile device importers that had access to cheap dollars, sold at least 300,000 handsets to customers at open market rates.