July 11, 2018 – 6:22
Iran’s central bank has not found a choice to face the collapse of the local currency except to open a secondary market for hard currency today, retreating from a three-month effort to impose a single exchange rate against the dollar after falling to record highs.
The new market will meet the need for small importers and exporters from the private sector, according to the Iranian news agencies Tasnim and Fars.
A central bank official said the secondary market “will allowexchange rates to rise and fall freely.”
“The price of foreign exchange will be determined based on supply and demand,” the official IRNA news agency quoted Mehdi Kasraibor, director of the foreign exchange rules and policies department of the central bank, as saying on Tuesday.
The authorities announced in early April that they are working to unify official market prices and the free market for the riyal to reach a single price set by the central bank, and warned that those who will trade the dollar at different prices “will face arrest.”
The Iranian action was aimed at stopping the fall of the riyal, which has fallen to record lows against the dollar. The fall in the riyal was boosted by US President Donald Trump’s decision to withdraw from an agreement signed by Iran with international powers in 2015 over its nuclear program.
Some US sanctions on the Iranian economy are expected to be re-imposed in August, as well as another set of sanctions in November. This has led Iranians to turn their savings into dollars.
The common price system failed to stabilize the riyal. In late June, the Iranian currency plunged to a record high of about 90,000 rials to the dollar on the black market. The currency was around 80,000 riyals on Tuesday, compared to 43,000 at the end of 2017.
The secondary market was launched today, but Kasraibor did not elaborate on how it worked, or whether the government would intervene if the riyal fell sharply.