DUBAI: A battle of wills between Iran's government and foreign exchange traders may end with authorities taking over all legal trade in the rial, leaving many Iranians to seek hard currency illegally in a poorly supplied black market.
This arrangement would probably let the economy limp on in the face of Western economic sanctions. But it might also increase corruption, distort companies' business decisions and fuel middle-class discontent with President Mahmoud Ahmadinejad.
In the past two weeks, the rial-US dollar exchange rate has emerged as a fault line in Iran's economy as the country resists foreign pressure over its nuclear programme, denying Western accusations that it is aimed at making weapons.
The sanctions have slashed Iran's oil export earnings and triggered a rush by Iranians to change their savings into foreign currency, dragging the rial down.
Early last week the rial was trading around 37,500 to the dollar, having lost about a third of its value in 10 days and two thirds in 15 months.
For Iran's clerical rulers, who face threats of war from abroad and widespread if subdued discontent at home, preventing any destabilising economic crisis is a pressing concern.
Many economists estimate Iran may still earn more from exports than it spends on imports, giving the state leeway to resist Western pressure, as sanctions-hit rulers in the likes of Iraq, Serbia and Zimbabwe did in the past.
But a loss of trust in the rial among Iran's private savers means the government may now limit private dealing in the currency to staunch the flow.
The slide in the rial is boosting inflation, officially at around 25 per cent already, as imported goods become dearer.
Last week riot police clashed near Tehran's Grand Bazaar with crowds protesting at the currency's drop, while Ahmadinejad is under fire from parliament for his economic management. So the government is eager to stabilise the exchange rate.
Its failure to do so in the last several days suggests it may have to close down the legal free market entirely to establish control of the currency, analysts said.
"The end result will be the government taking over currency trading, squeezing out the private traders or forcing them to bow to the government for patronage," said Mohammad Ali Shabani, an Iranian political analyst based in London.
"This will give the government leverage as it prepares for tighter sanctions in the next 20 months."
Threats Over the last several days, the government has tried to impose its will on the currency market with a combination of threats and persuasion.
The Iranian Money Changers Association, a state-licensed body, recommended its members sell dollars at 28,500 rials - a discount of about a quarter on last week's free market rate.
indiatimes.com
This arrangement would probably let the economy limp on in the face of Western economic sanctions. But it might also increase corruption, distort companies' business decisions and fuel middle-class discontent with President Mahmoud Ahmadinejad.
In the past two weeks, the rial-US dollar exchange rate has emerged as a fault line in Iran's economy as the country resists foreign pressure over its nuclear programme, denying Western accusations that it is aimed at making weapons.
The sanctions have slashed Iran's oil export earnings and triggered a rush by Iranians to change their savings into foreign currency, dragging the rial down.
Early last week the rial was trading around 37,500 to the dollar, having lost about a third of its value in 10 days and two thirds in 15 months.
For Iran's clerical rulers, who face threats of war from abroad and widespread if subdued discontent at home, preventing any destabilising economic crisis is a pressing concern.
Many economists estimate Iran may still earn more from exports than it spends on imports, giving the state leeway to resist Western pressure, as sanctions-hit rulers in the likes of Iraq, Serbia and Zimbabwe did in the past.
But a loss of trust in the rial among Iran's private savers means the government may now limit private dealing in the currency to staunch the flow.
The slide in the rial is boosting inflation, officially at around 25 per cent already, as imported goods become dearer.
Last week riot police clashed near Tehran's Grand Bazaar with crowds protesting at the currency's drop, while Ahmadinejad is under fire from parliament for his economic management. So the government is eager to stabilise the exchange rate.
Its failure to do so in the last several days suggests it may have to close down the legal free market entirely to establish control of the currency, analysts said.
"The end result will be the government taking over currency trading, squeezing out the private traders or forcing them to bow to the government for patronage," said Mohammad Ali Shabani, an Iranian political analyst based in London.
"This will give the government leverage as it prepares for tighter sanctions in the next 20 months."
Threats Over the last several days, the government has tried to impose its will on the currency market with a combination of threats and persuasion.
The Iranian Money Changers Association, a state-licensed body, recommended its members sell dollars at 28,500 rials - a discount of about a quarter on last week's free market rate.
indiatimes.com
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