#IRAN CURRENCY COMPARE TO US DOLLAR FULL#
These trends have been on full display in recent months.Ī year ago, the rial could be traded at three rates: (1) a very cheap rate for imports of basic goods and medicine, which used to be called the official rate (2) the rate used by importers and exporters in a system called NIMA and (3) the open market rate. Manipulation of these complex systems has often led to significant corruption benefiting the politically well-connected.
It has periodically introduced new rates that are initially designed to fulfill a limited function but later tend to become more important, while older, lower rates are used for fewer purposes. The government has flailed about for years to manage the exchange rate. Hence, Raisi has faced growing public and parliamentary criticism as his government struggles to curtail the slide.
Many citizens also associate these drops with higher inflation, since domestic businesses can use a lower rial as an excuse to raise prices even on goods produced at home. Yet the Iranian public and elite tend to interpret currency depreciation as a sign of government weakness and incompetence. These factors explain why the IMF often recommends that governments reduce the value of currencies in response to economic crises. On paper, weakness in the rial could actually benefit Iran’s economy in some ways-such as by making imports more expensive and exports more attractive, or helping the government earn more revenue in rial terms from oil exports, thereby reducing the budget deficit. The move quickly led to a sharp drop in dollars sold in Iraq’s daily auction, presumably affecting dollar availability across the border. Federal Reserve enhanced its compliance conditions for entities seeking to access Iraqi oil revenues, with the goal of combating money laundering to Iran, among other jurisdictions.
#IRAN CURRENCY COMPARE TO US DOLLAR DRIVER#
Demonstrating how much psychology plays a role, the rial reversed some of its losses in the past few days after International Atomic Energy Agency director-general Rafael Grossi visited Tehran, generating some positive sentiment.Īnother likely driver of the currency challenges is the recent enactment of further restrictions on the flow of dollar notes into neighboring Iraq. secondary sanctions will remain in place indefinitely-as opposed to the impact of any specific sanctions Washington has imposed recently. In all likelihood, the rial’s decline since the nuclear talks stalled last fall partly reflects market participants coming to terms with the probability that most U.S. Given the large-scale anti-regime protests over the past few months, Tehran’s military support for Russia, and the breakdown of nuclear negotiations, public sentiment about the future has been decidedly negative. The rial is also especially sensitive to political developments and overall domestic sentiment. The overall inflation rate tracks the rial’s depreciation over the past year, and its rise has been driven by a number of factors, including a persistently large budget deficit that the government finances in part through indirect borrowing from the Central Bank of Iran. Iran’s average consumer prices in February rose more than 53 percent compared to the same month last year, with food, beverages, and tobacco increasing more than 70 percent. Factors Driving the Current DeclineĪs mentioned above, one key reason for the rial’s plummet is high inflation. Rather than seeking international help, the government is trying to calm the currency tumult using its own tools and may be able to ease conditions in the near term-even if this does little to fix the economy’s longer-term structural problems. The challenge will grow as Nowruz approaches later this month, since currency demand typically increases around the holidays as people travel and buy gifts.Įven so, Western policymakers should not assume that this turbulence will force Tehran’s hand diplomatically. Although the rial regained some of these losses in the past few days, President Ebrahim Raisi’s government is under intense pressure to stabilize the situation more fully, as Iranians grapple with a toxic mix of high inflation and tepid growth. The current downward trend began last August and surpassed 600,000 rials to the dollar in late February, setting a new record. Since the beginning of the year, Iran’s currency has lost more than 17 percent of its value against the dollar on the open market. The rial keeps plummeting, but policymakers should not assume this will spur Tehran to scale back its nuclear negotiating demands.
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