Iranian rial’s open market value nosedives on nuclear deal anxiety

Iranian rial’s open market value nosedives on nuclear deal anxiety
The run on the rial has led to much humour on social media. Iranians are enjoying a meme drawing on Iranian movie Damascus Time. The head of a Chechen Islamic State (IS) enemy in the movie is superimposed on a dollar with the Persian phrase “Chitori Irani?” “How are you doing Iranian?”)
By bne IntelliNews April 8, 2018

The Iranian rial (IRR) sank to an all-time unofficial market low on April 8, dropping more than 8% in the course of 24 hours and pushing towards IRR58,000 to the dollar as buyers doubled down on hoarding foreign currency amid the worsening war of words between Tehran and Washington. By lunchtime on April 9, it was even testing rates beyond IRR60,000.

Iranians are clearly on edge with many speculating on a possible US withdrawal from the 2015 multilateral nuclear deal which was supposed to free Iran’s economy from crippling sanctions, although in reality only the European Union, Russia and China removed financial restrictions. The US, even prior to Donald Trump arriving in the White House in January 2018, was accused by the Iranian government of throttling banking transactions.

The unofficial value of the rial is down more than half year on year—the April 8 rate of IRR57,500 to the dollar compared to the IRR37,620 seen on the same day a year ago, according to Bonbast.com, a respected free market exchange rate website. Meanwhile the gap between the official rate and the free market rate had widened to more than IRR17,500, making the price available to selected businesses extremely profitable, Tehran’s Gold and Jewellers Union reported.

On Tehran’s Ferdowsi Street, the epicentre for money changers, hundreds of people were seen huddling around the doors of the Mellat Exchange, one of the main providers of hard currency. Other currency trading outlets, like Olympic Exchange, have halted trading of the euro and the dollar. This has pushed people to find fiat currencies to buy including the pound sterling. It has seen a meteoric rise, touching just below IRR79,000 on April 8 and breaking past IRR84,500 during the first half of April 9.

"There is a clearly an increase of people buying dollars because they think the United States will pull out of the nuclear deal," the head of an exchange office in Tehran told AFP on condition of anonymity on April 4.

“I’ve honestly lost hope in our negotiations with the outside world, they have decided among themselves to kill the BARJAM [the Iranian acronym for the nuclear deal] and we are now at the mercy of the Americans and their associates around the region,” one person who was looking to buy forex told bne IntelliNews on April 3.

The open market currency panic has certainly got the attention of parliamentarians. They have summoned the governor of the Central Bank of Iran (CBI) Valliollah Seif, and the Minister of Economy Masoud Karbasian to explain the precipitous drop in the national currency in a closed session at parliament scheduled for April 10. One MP, Nader Qazipour, said: “The [foreign] currency conditions have been chaotic in recent days.” He noted that the depreciation of the rial was causing havoc, with citizens lamenting the falling value of their salaries and speculation driving mass purchasing of foreign currencies. Qazipour has demanded that Speaker of Parliament Ali Larijani take measures to halt the run on the rial. Islamic Republic News Agency (IRNA) quoted him as saying on April 4: “[It is] causing political, security and societal problems.”

Since last year, the central bank has loosened its reins on the rial to allow it to depreciate gradually to counter-balance Iran’s high inflation and help make exports more competitive. But with the drop in its value having become precipitous, the authorities, who in December and January faced a nationwide wave of street unrest against economic hardship, corruption and various other grievances, have a dire problem on their hands.

Speculation set to worsen as Trump deadline approaches
The currency speculation may worsen as May 12 approaches—that is the deadline set by Trump for his decision on whether to keep the US in the nuclear deal, formally entitled the Joint Comprehensive Plan of Action (JCPOA). Europe’s E3, the UK, Germany and France—which have the three biggest economies in the EU—have been working on ways of persuading Trump to stay in the accord but with the US president’s recent appointing of more hardline representatives to his administration hopes that their efforts can succeed have receded. Nevertheless, the E3, along with China and Russia, are insistent Iran has abided by the JCPOA and are not at all in favour of scrapping it.

Iran agreed to measures that bar its way to the development of a nuclear weapon in return for the signing of the nuclear deal and its removal of the most damaging economic sanctions, against areas such as oil exports and central bank activities.

Tehran’s chief nuclear negotiator Ali Akbar Salehi has said Iran would resume the 20%-enrichment of uranium within four days of abandoning of the JCPOA. He added that it would be humiliating for Europe to follow US policy on the nuclear deal.

 “This is a very complicated question in political terms and needs extensive analysis…Suffice to say that it will be politically derogatory for Europe to follow the US policy on the JCPOA unquestioningly, because it would prove that European countries lack independence in their decision-making process,” he said.

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