Expert: Iran’s currency drops in value reflects collapse in confidence

Posted on October 7, 2012

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Immediate drop in the value of the rial in Iran reflects a collapse in confidence in the currency as the result of sanctions that have significantly reduced oil revenues, expert James M. Dorsey said recently.

Iran’s foreign currency market has become increasingly chaotic over a few recent days.

The government officially launched the Iran Forex Centre on September 24 in an effort to stop the national currency’s (the rial) plunge in value but that move hasn’t been effective.

Dorsey said these ups and downs with Iranian currency made it difficult to do business in dollars and euros and persuaded many foreign companies to steer clear of Iran.

“The collapse of confidence is in effect political given that the rial has fixed rate governed by the central bank that has effectively allowed for a parallel market,” Dorsey said.

“As a result of these happenings, the sanctions are effectively sharpening and exploiting weaknesses in the Iranian economy that are the result of domestic policies,” he underscored.

Since the center opened last week a dollar has gone from costing 25,500 rials to 36,200 rials by yesterday (Tuesday) afternoon.

But Iran’s economy is under increasing pressure because of international sanctions that have made it extremely difficult for Iran to sell its oil and have access to its foreign currency holdings around the world.

On Monday, a USD was sold at 29, 700 rials in the morning, but sharply increased to 35,500 rials by the evening. As a result of the rapid drop, as much as 660 trillion rials in cash assets of country’s citizens were lost on Monday evening.

Following the unstable ups and downs of Iran’s currency markets, people at the market were gathering up, burning tires and shouting slogans against government, Iranian media outlets reported.

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