Insider news & Analysis in Iran
Regime manipulating exchange rate

By INU Staff

INU- An unusual rise in the exchange rate for US dollars and other hard currencies in Iran, has sparked rumours that the Iranian Regime has actually devalued its own currency – the rial – in order to pay its own expenses, like public sector salaries.

This is something that has been levelled against every Iranian administration since 1979, mainly because the Iranian economy has been slowly sinking since then and each President has experienced a forex market shock during his tenure.

While each government, including the current Hassan Rouhani administration, has denied the allegation, a lack of trust in the Iranian Regime and the general feeling of the mullahs’ illegitimacy, cause the rumours to persist.

This time around, however, there are economic realities that lend credibility to the idea that the mullahs are deliberately altering the exchange rate.

The majority of the Iranian economy relies on oil exports in order to survive. The Regime receives payment for oil in US dollars, which it has to convert into rial to spend domestically. If the rial is really low in value compared with the dollar, this leaves the Regime with more money, while bankrupting the Iranian people.

Of course, the dramatic fall in value on the value of the rial has caused a massive rise in demand for the US dollar among the Iranian people, allowing the mullahs to make money off this. The Regime set an artificial exchange rate of 42,000 rials to the US dollar as opposed to the over 200,000 being asked on the official market at the end of September, allowing them to get dollars cheaply and sell them on for huge profits.

A recent report by Iran’s Central Bank, stated that during the past five months, the Iranian Regime had made 540 trillion rials in oil income (18% above projection) and 660 trillion rials less in non-oil income, such as taxes.

This shows an economic slowdown, which means that the government needs more money to continue running, which is why it is selling US dollars at heavily inflated rates.
Some people warn that this could have serious consequences on the economy, including sparking national unrest, and that the mullahs would not want to risk their shaky grip on power by manipulating the exchange rate.

However, institutionalist economist H. Raghfar argues that the Regime has done it in order to serve the interests of the mullahs and their associates who stand to profit from it.
He cites that many Iranian banks are in serious trouble and are reliant on the state to survive, but that the Regime has refused to introduce essential structural reforms.

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