Iran Parliament's Think Tank Has Misgivings About Scrapping USD

In an analytical report on the cost and benefit of the draft, the MRC says its provisions don’t take into account the role of foreign exchange policies and interaction of the dollar with the domestic economy.

The think tank argues that although the USD has a meager share in the Iran’s forex market, it is still the dominant currency and a credible unit for converting other currencies, according to Financial Tribune.

Published on the official MRC website, the report says if the proposed bill becomes law it will “certainly be harmful and create major problems for the forex market.”

The research arm of the parliament maintains that the proposal does not carry the support of experts and doesn’t take into consideration realities of the forex market that has been subjected to major upheavals and price fluctuations from the spring of last year. 

It points to one of the malignant outcomes of getting rid of the greenback and says that the Central Bank of Iran would no longer be able to intervene in the forex market and play its destined role in stabilizing forex rates. It further warned that the ensuing volatility would extend to other markets (gold, housing, auto, etc.). 

Internal Sanctions 

Move against the USD is uncalled for because it also  would deprive the country of the very limited foreign trade opportunities “by imposing internal limits on foreign trade and adding to the existing overseas hurdles that local businesses are grappling with.”

Elaborating the point further, the legislative experts said,” banning the dollar would expose the forex market to a variety of problems given the broad functions” of the global reserve currency. It would be in line with the US sanctions [and not against it].”  

The report concurred that the CBI has been successful in restoring stability to forex rates in recent months despite the political tensions that otherwise could have perturb the fragile currency market.  

The bill backed by 50 plus MPs calls for banning “all transactions, both by the private sector and government using the [US] dollar”. 

It further asks people holding dollars to exchange it with the rial or other currencies by the time the bill is passed and becomes law. 

In a graver warning the bills adds that after the law comes into force “the USD will be considered contraband.”   

Data released by the CBI indicates that share of the dollar in Iran’s foreign trade is at its lowest due to the tough financial restrictions the Trump administration has imposed on key aspects of the Iranian economy. 

3 Major Players 

Citing latest statistics on foreign trade conducted in the Nima system (Persian acronym for Integrated Forex Deals System), the MRC said foreign trade was dominated by the yuan, euro and the UAE dirham.   

Nima is a platform where exporters sell their currency earnings to companies importing non-essential goods. It logs data about repatriated and purchased forex for import and export. 

The data that covers trade conducted in Nima since its inception in June of last year, shows that AED accounted for 28.11% of the currency sold via Nima followed by the yuan and euro which respectively accounted for 26.32% and 26.27% of the total foreign currency sold to importers during the year.  

This is while the USD accounted for only 10.15% of the traded currencies. 

MRC recalls similar moves pursued in the past by former governments, arguing that in the absence of options such measures will lose their effectiveness in the long-term.  

It merits mention that the Ministry of Industries, Mining and Trade in March 2018 banned all import orders based on the US currency to encourage non-dollar trade.

The anticipated ban was in response to the US announcement at the time that it was banning all dollar transactions undertaken by Iranians and their representatives. 

Test Other Ways 

However, the MRC doesn’t dismiss the idea of getting rid of the dollar in its entirety and the premise it is built on. But is does stress that future measures to promote non-dollar trade should be pursued by other means.

MRC hails a part of the bill that obliges the Foreign Ministry to use “economic diplomacy” to promote non-dollar transactions across the globe.   

As per Clause 4 of the bill, the ministry is obliged to engage in serious negotiations with other countries, particularly those on the US sanction list, to help form a universal coalition for boycotting the dollar and stopping its use in international commerce.

The think tank proposes the following measures to promote non-dollar transactions:  

- tapping into capacities to trade in national currencies with trade partners 

- creating trade channels between Iran and its trade partners

- drawing on existing capacities to trading in rials with neighbors

- stepping up efforts to develop parallel payment systems to substitute SWIFT.     

SWIFT-the a major international paying system- decided to remove Iranian banks from its network last November under mounting US pressure.