"Central bankers around the world use a variety of methods to control the market and protect the value of their national currencies. The Central Bank of Iran should do its best to prevent the decline in the value of the rial and support local businesses," Ali Rahmani was quoted as saying by ISNA.
He referred to controlling instruments, the regulated forex market and oversight bodies as the three basic arms of central banks’ intervention, though he holds the opinion that Iran needs to develop more up-to-date instruments.
As part of new measures to better control the volatile currency market, the CBI has been trying to develop a regulated forex market. It wants to organize and establish a transparent market where foreign currency will be traded in cash through an electronic platform in line with regulations outlined by the Money and Credit Council, according to Financial Tribune.
The move is a part of CBI efforts to regulate the market long -dominated by informal traders and an army of middlemen. Currency trade went underground in the spring and summer of 2018 when the CBI banned all currency trade outside the banking system including by certified exchange bureaux.
However, the measure seems to be facing challenges because inauguration of the market has been postponed time and again without any convincing explanation.
Alternative Approach
The CBI has often been accused of having a strong grip on currency rates largely through its affiliated moneychangers.
Unlike Rahmani’s stance, experts support the CBI's role in controlling inflation to protect the value of the national currency. A recent report by the Persian-language economic newspaper Donya-e-Eqtesad shows the CBI injected higher volumes of foreign currency into the market when the export revenues were higher.
Citing official data, the newspaper (a sister publication of the Financial Tribune) reported that from 2004 to 2018, the CBI channeled an estimated $284 billion into the domestic currency market to control forex rates and support the rial.
The paper said the high volume of currency injected into the market in the past years could not salvage the value of the rial and foeign currencies appreciated more than five times against the national currency.
While many criticize what they describe as the “CBI’s currency injection” policy, there are observers who hold a positive view of its efforts to prop up the tanking national currency.
The rial lost more than 60% of its value between April to September 2018, spurred by threats of new US economic sanctions and dim prospects of currency reserves as Iran’s oil revenues took a drubbing unseen in recent decades.
The dollar had soared as high as 180,000 rials, thanks to avaricious middlemen and speculators long involved in gauging currency rates before the CBI was granted special authorization to intervene in the currency market and regulate the rates.
Soon after the CBI interventions, which were largely through boosting the supply side, the greenback fell below 110,000 rials in October 2018.
Except for brief bouts of volatilities, the currency market has seen less volatility since April 2019 and unlike what was seen in the first half of last year.
The greenback is currently worth 130,000 rials at CBI- affiliated moneychangers but big increase is currency rates is expected soon amid heightened political tensions in the strategic region.
CBI intervention mainly involved increasing the currency supply in the market and pushing for stringent disciplinary measures to curb speculation by avaricious dealers and smugglers.
In doing so, the CBI used banks and bank-affiliated exchange bureaus and was able to deliver -- something few observers had anticipated.
To increase currency supply and meet the needs of importers of basic goods, the regulator introduced another package as per which exporters of non-oil goods are obliged to repatriate their overseas earnings.
By doing so the CBI has compensated the steep decline in crude oil export revenues, which is the lifeblood of the Iranian economy.