Iran begins rationing foreign currency for trade and industry sectors

Iran begins rationing foreign currency for trade and industry sectors
Customers crowd outside a foreign exchange kiosk during one of Iran's recurrent foreign currency shortages. / bne IntelliNews
By bne IntelliNews October 18, 2023

Iran has initiated a foreign currency rationing system for trade and industry. The decision took many economic stakeholders by surprise and has sparked concerns as the allocated foreign currency does not appear to meet the critical needs of these sectors, local business newspaper Donya-e Eghtesad reported on October 16.

Head of the Tehran Chamber of Commerce Mahmoud Najafi-Arab described this sudden policy shift as another example of unilateral changes imposed by policymakers. 

Adding to the unease, Najafi-Arab said, is that this currency rationing comes at a time when traders are the primary suppliers of essential production inputs.

He explained that the criteria for this rationing will be calculated based on the average of the past two years for the given industry, with a coefficient of 1.25. For the trade sector, it will also be determined using a two-year average but with a coefficient of 0.85.

This foreign currency rationing scheme is the latest measure employed by the Central Bank of Iran to regulate the foreign exchange market. The bank has already outlawed any foreign currency trading outside the exclusive channels it has established. Moreover, traders have long been mandated to sell their export earnings to the central bank at prices lower than free market rates.

The timing of the new measure is significant, coming soon after the outbreak of the Israeli-Palestinian conflict, which had a ripple effect on the market, particularly affecting exchange rates of major foreign currencies against the Iranian rial.

The Iranian government's motivation behind the rationing measure seems to be to ration the dwindling foreign currency reserves in the country amid lingering sanctions against Tehran while mitigating the psychological impact of regional conflicts on exchange rates.

US media have recently reported that Washington has quietly reached an agreement with Qatar to prevent Tehran from gaining access to the $6 billion recently released by the US amid speculations that Iran may have had a role in the Hamas attack on Israel, though Tehran denies any such involvement and US President Joe Biden says there’s no proof of this.