07232014Wed

Iran currency falls further on concerns over bank

The New York Times

By RICK GLADSTONE

Iran’s currency, weakened by Western sanctions and economic mismanagement, has fallen further in value over the past few days in an apparent reaction to a leadership problem at the Central Bank that has stirred new concerns about political tensions, money traders and outside economists said Tuesday.

The career of the Central Bank’s governor, Mahmoud Bahmani, appeared to be in jeopardy, and with it the short-lived stability for the currency, the rial, after a drop in value last year of roughly 50 percent.

Most of that decline came in October in a frenzy of speculative selling by Iranians worried that rapid inflation could render their money worthless. The government responded with a crackdown in which some money traders were arrested.

But reports in Iran on Sunday that Mr. Bahmani suddenly wanted to retire, followed by news reports on Monday that he had been discharged after a parliamentary inquiry on improper withdrawals by the Central Bank, appeared to lay the groundwork for new fiscal anxieties.

While Iran does not publicize exchange rates in unofficial trading, Reuters quoted currency traders in Dubai, United Arab Emirates, as saying it cost as much as 36,250 rials to buy a dollar on Tuesday, compared with 33,000 on Sunday.

“Without reliable official information, any change in Tehran’s political winds spooks the public, and they sell rials,” said Steve H. Hanke, an economics professor and currency expert at Johns Hopkins University.

Mr. Bahmani, a disciple of President Mahmoud Ahmadinejad, is widely associated with the demise of the rial, which traded at about 10,000 to the dollar a few years ago. He has been criticized in Parliament, where many lawmakers consider the administration economically incompetent.

The rial’s weakness also reflects the impact of sanctions over Iran’s nuclear program, most notably the European oil embargo and the cutoff of access to global capital and credit markets. Iranian officials, who say their nuclear program is peaceful, have acknowledged that sanctions contributed to a 50 percent drop last year in oil exports.

The Mehr news agency reported that on Sunday, Mr. Bahmani had asked the president’s permission to retire. Mr. Ahmadinejad rejected the request. The same day, Parliament decided to investigate the Central Bank, including the “Overnight Withdrawals” scandal, in which the Central Bank withdrew several billion dollars from Iranian banks last March.

The intrigue deepened Monday when Mehr reported a parliamentary financial oversight body had ordered Mr. Bahmani’s dismissal, saying the Central Bank had “illegally withdrawn money from certain state and private banks without notifying them in advance.” A court spokesman told Mehr that Mr. Bahmani had appealed the ruling.

The International Islamic Awakening News Agency quoted Mr. Bahmani as saying he was being punished because he was fighting fraud. “Some gentlemen see their interests in danger, that is why they have created this situation,” he was quoted as saying.

Thomas Erdbrink contributed reporting from Tehran.

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