Iranians still looking for free market rates on the Iranian rial (IRR) to the dollar—despite the banning of foreign currency trading not pegged to official rates on April 9—encountered an all-time weak level of IRR64,000 on May 6.

Blacklisted forex website Bonbast.com provided the figure with the free market having started to reassemble itself through back offices and off-street trading. The Iranian state has forced the closure of all foreign exchange stores dealing in hard currency across the country and has implemented the official exchange rate mechanism NIMA. Only licensed banks are permitted to deal in dollars, euro and pound sterling.

Social media accounts tracking the rial's unofficial exchange rates backed up the figures given by Bonbast.com, determining that the euro and the pound sterling had reached their strongest ever levels against the Iranian currency at the selling prices of IRR76,000 and IRR88,000, respectively.

The Central Bank of Iran (CBI) has decreed official fixed of IRR42,000 to the dollar, and IRR50,250 and IRR56,810 to the euro and pound sterling, respectively, saying it may permit the rates to rise or fall within a band of 5-6%. The move has forced the unofficial market to retrench away from the high street and into office buildings out of the public eye. Any person now caught trading hard currency is liable to arrest and a charge of money laundering.

The plunge of the rial caused a good deal of panic and confusion among the public. The IRR depreciated as concern spread over the likelihood of Donald Trump in mid-May withdrawing from the multilateral nuclear deal which since the start of 2016 has shielded Iran from crippling economic sanctions.

The public has resorted to extreme measures to source foreign currency to hedge against any further real-value depreciation of the rial. That has included piling into the sovereign gold coin market.

Reports from Tehran's Ferdowsi St—previously the heart of Iran’s foreign currency trading, but which for weeks has been shut on the back of the new draconian trading rules—say that street hawkers are now hiding down alleyways and parallel streets in the surrounding area to keep out of the way of the watchful eye of authorities.

Dollar rules for outbound travellers
According to the latest regulations put out by the CBI, sales of foreign currency are now capped at $500 or $1,000 for regional and non-regional trips, respectively. Also, buyers must order their money at a licensed bank and pick it up after clearing passport control at an airport.

Another stipulation is that a buyer must have a valid international air ticket and a visa stamped in their passport if they wish to purchase foreign currency through an officially ordained channel. The situation has left bureaux de change in Tehran with no source of income as the regular channels for profit-making have all but dried up.

Meanwhile, foreign tourists have been left bemused over the current state of affairs. With the closure of street-side foreign currency shops, there are no legal channels for non-Iranians to change their money.  

One couple from Switzerland said on social media that “everyone from taxi drivers to hotel receptionists has acted as impromptu foreign exchange retailers upon request”.

Gold market rally
As foreign currency circulation continues to fall due to the closure of the regular market, many people in Iran have moved to gold as a haven from the continuing devaluation. Gold coin and bar demand in Iran shot up to a three-year high of 9.3 tonnes in the first quarter as Iranians—correctly—anticipated that the consequences of deteriorating relations with the US would cause Tehran to introduce currency controls, the World Gold Council said in a report released on May 3.

By May 6, the price of two of the most-traded coins on the market, the Bahar Azadi and the Emami sovereign coins, reached record prices by the opening of trade, topping IRR20,500,000 and IRR20,475,000, respectively, 30.8% up since January 6.

By the close of trade on May 5, the CBI had halted the sale of gold coins with six-month annuities as demand skyrocketed during the day's trading. Meanwhile, the banking authorities have sought to cool the gold coin market by offering one and two-year maturities on the sale of coins.