Economy Why the Dollar Price in Iran Continues to Rise?

Why the Dollar Price in Iran Continues to Rise?

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Iran and the currency challenge

By Pooya Stone

When the presidency of Mahmoud Ahmadinejad began, with him the dollar price in Iran saw an increase and moved from 800 Tomans for each dollar to 900 Tomans.

At least in the eight-year period of his headship, the price of the dollar continued to increase. Economic analysts also found that behind the rise in the exchange rate are the regime’s bands and government factions; bands that are present in the economic sphere, especially in the export of the wealth of the Iranian people.

Export experts who tried to bypass the global sanctions by exporting various materials, including minerals, petrochemicals, steel, and even dry goods have been able to convince Iranian rulers that export growth depends on rising currency prices. They hope for the best, that this rate will be balanced after a while and the situation will improve.

As a result, the price of the 900 Tomans dollar increased by 298 percent after eight years, which became almost three times higher, reaching a price of 3,579 of Tomans.

At the same time, economists realized that this increase was done under the pretext of sanctions and that the goal was to make more profit for rent-seekers and to seize people’s assets in various fields.

The report of the Central Bank of Iran on the situation of the foreign exchange market in 2012 shows that in that year, the average dollar exchange rate increased from about 1877 Tomans of the beginning of the year to 3573 Tomans at the end of the year. In other words, in the period of 12 months of 2012, the dollar exchange rate rose by 90.3 percent.

Farshad Momeni, a government expert, described the period as follows:

From 2005 to 2013, we witnessed the most unprecedented incitement to rent-seeking in the post-revolution period. According to the Parliamentary Research Center’s calculations during this period, in parallel with all kinds of crises and human, social, and environmental crises, the currency suction of each gross domestic production increased fivefold. That is, the humiliating dependence on the outside world has increased on an unprecedented scale. Production in these polluted relationships has become a means of rent-seeking and assembling production in unimaginable dimensions.” (ILNA, 19 May)

He further concluded:

“This has created big and small problems for the country so that the system could not create jobs for its children who were educated, and they are also frustrated they flow abroad.”

What did Rouhani do in the foreign exchange market?

Hassan Rouhani’s government, after the start of its headship, kept the exchange rate trend with some fluctuations for two years in the same channel as before, so that he could conclude the case of the international nuclear deal, known as the JCPOA, and not face the problems caused by the high prices of goods and services and the basic needs of the poor. Khabar online wrote on this issue on 28 June 2015:

“In general, the study of the performance of the two years of activity of Rouhani’s government shows that during this period, the dollar rate has decreased from 3579 Tomans to 3329 Tomans in the free market. A comparison of these figures shows a 7.5 percent drop in the dollar price.”

This agreement however, between the regime factions was disrupted after the cancellation of the JCPOA, and the exchange rate and other commodities fluctuated further.

The second round of Rouhani’s presidency and the rise in currency prices

The price of the dollar in early 2017, which was about 3750 tomans, gradually increased and reached 4700 Tomans at the end of the year.

At the same time, Valiollah Seif, the head of the Central Bank, advised people not to buy foreign currency because the price of currency would fall ‘in the coming days’. But the price of the currency was still rising. Meanwhile, Rouhani’s government was pushing for an increase in the exchange rate to compensate for its budget deficit under the pretext of unifying the exchange rate. Hadi Ghavami, a member of the Parliamentary Program, Budget, and Accounts Commission, said:

“The increase in the exchange rate is in the government’s favor, as the dollar’s computational rate was 3,300 Tomans this year, but the dollar has recently risen to more than 4,500 tomans, which naturally generates revenue for the government. Although the government says it does not want to monetize foreign exchange, the economic reality is that the government is taking advantage of this. (Khane-e-Melat, 10 February 2018)

2018 Protests; Protests by investors and rising prices

The protests in January 2018 were an all-encompassing uprising that spread to more than 142 cities across Iran. People protested the high prices of goods and public necessities and the unbridled rise in the daily prices of items. The investors also joined these protests. Euro News on 28 November 2018 wrote:

“Six months after his re-election victory, Rouhani’s failure to deliver on economic promises and employment, as well as the plight of bankrupt financial and credit institution depositors, sparked public protests in many Iranian cities in December 2017. These short-lived protests were enough to raise the dollar to about 45,000 rials.”

2018, Trump’s departure from the JCPOA

With Trump’s departure from the JCPOA due to the expansion of destructive and disruptive interventions in the Middle East by the clerical regime and the implementation of missile and nuclear projects, inflation and the exchange rate were rising. At the same time, 82 members of the regime’s parliament who asked the regime’s president “about the government’s failure to control the smuggling of goods and currency, the continuation of banking sanctions, the government’s inappropriate action to reduce the unemployment rate, severe economic recession for several years and the rapid increase in foreign exchange rates and the devaluation of the national currency, only the Hassan Rouhani’s response to the continued banking sanctions was convincing, and in other cases, they voted against. (Javan news agency, 24 March 2019)

How much did the dollar rise in 2019?

At the beginning of 2019, the dollar started to rise at a price of around 13,000 Tomans, and at the end of 2019, it reached its highest level and settled for a rate of 16,000 Tomans. This year, the regime entered the blacklist of the FATF, rising corruption, astronomical rent-seeking, regional interfere, the November uprising with more than 1,500 young people killed on the streets, the tightening of sanctions and the entry of the coronavirus into the country, has revealed a dark future for the Velayat-e Faqih (clerical) regime.

2020, Who benefits from the rise in the exchange rate?

While only five months have passed since the beginning of 2020, the exchange rate has been rising with more volatile fluctuations, but what is behind it? The biggest beneficiary, of course, is the Rouhani government, which can make up for part of its budget deficit. After that, his political partners in governmental and private enterprises that benefit greatly from the rise in the exchange rate. A government expert said:

“In a situation where a large number of economic activists are demanding the release of exporters in the pricing of their exchange rates, about 70% of the country’s export currency is the result of the sale of mineral raw materials, petrochemicals, steel, and other such products, while these products are the wealth of the country. Therefore, exporters do not have the right to price the exchange rate because they are exporting the country’s resources.” (Jahan Sanat, 19 May 2020)

He concluded: “Although manufacturers and exporters are the proponents of the proposal to import without (foreign) currency, and they believe it will reduce the cost of transferring money, but implementing this trick by giving freehand to the holder of the currency not only will not solve the country’s problems, it will increase the exchange rate, the inflation, and reduce people’s purchasing power, and will even make production conditions even more difficult.

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