Iran Postpones Unification Of Official And Open Market Exchange Rates

Iran Postpones Unification Of Official And Open Market Exchange Rates... 21/02/2017 Economy

Keywords:#2015, #AP, #American, #Asia, #CBI, #Central_Bank, #Central_Bank_of_Iran, #Financial_Tribune, #Firouzeh, #Forbes,, #Hassan_Rouhani, #Iran, #Iranian, #January, #Middle_East, #President, #Rouhani, #Tehran, #Vahid_Salemi

Dominic Dudley ,
I write about business and economics in the Middle East
Opinions expressed by Forbes Contributors are their own.
The Central Bank of Iran (CBI) has indicated that it will not be able to unify the country's official and open market exchange rates by March 20, as previously planned.
Iran has been living with two exchange rates for the Iranian rial for several years, which has both helped to fuel corruption and hampered cross-border trade. Those with ready access to the official rate have been able to benefit from relatively cheap hard currency, while other individuals and businesses have had to pay a higher price via the open market.
The gap between the two rates expanded as international sanctions were tightened against the country in the early years of this decade. The election of President Hassan Rouhani in 2013 and the nuclear agreement, which came into force in January 2016, have been followed by significant improvements in the country’s economic performance, but the issue of parallel exchange rates has stubbornly persisted.
A street money exchanger holds Iranian and U.S. banknotes in downtown Tehran, on December 26, 2016. (Photo: AP Photo/Vahid Salemi)

* * * Unifying the rates has been one of the key policy goals of the Rouhani government. However, while the gap between the official and the open market rates has narrowed, it remains in effect. According to local brokerage firm Firouzeh Asia Brokerage, the official exchange rate is currently IR32,390 to the U.S. dollar, while the free market rate stands at IR38,108 to the dollar.
The CBI has previously said it was aiming to have a single exchange rate by the end of the current Iranian fiscal year, which ends on March 20. However, Peyman Qorbani, a senior official at the CBI, told a press conference on February 19 that the continued lack of links between Iranian banks and their overseas counterparts meant it was unlikely to happen by the target date. It is not clear when the CBI now hopes to close the gap between the two rates.
“We want to have a gradual rate unification and an increase in correspondent banking relations is a prerequisite. With regard to this, we still have not reached a suitable level,” he said.
Cross-border banking ties between Iran and the rest of the world are only slowly increasing. According to the local Financial Tribune newspaper, the number of international banks with correspondent relations with Iran stands at 238 – that is up from 50 in 2014, when sanctions were in full effect, but still far lower than the 633 that existed a decade ago. The key issues holding back international banks from dealing with Iran are the ongoing U.S. sanctions on the country and the threat of huge fines from the American authorities for any transgressions.
Iran is gearing up for a presidential election in May and, although Rouhani has yet to formally declare his candidacy, it is widely assumed that he will run for a second term. His economic record is likely to form an important plank in his campaign, although it is mixed. While, the issue of the twin exchange rates has not been dealt with, his government has successfully reduced inflation from 40% a few years ago to around 8.8% today.
However, the benefits of the nuclear deal – which ended many of the international sanctions on the country – have not been as widely felt as many had hoped, leading to a potential backlash against Rouhani at the ballot box.
In a survey conducted by in December, 35% of Iranians said the country’s general economic situation was either very good or somewhat good, down from 54% in May 2015; and more people thought local economic conditions were getting worse (51.3%) than getting better (41.5%). Although a majority (55.4%) of Iranians approve of the nuclear deal, 72.6% said it had not contributed to any improvement in living conditions.
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