Iran has had two official exchange rates over the past three years: the so-called ‘forex chamber rate’ (currently at just above Rial 30,000 to the US dollar), which is the official interbank rate in Iran, and the free market rate (currently at above Rial 36,000 to the US dollar) that is used by official foreign exchange bureaus in the country.
In the past, the differential between these two rates (at times as high as 35%) has paved the way for corruption and also for a non-competitive business climate, where companies without access to the lower rate were at a major disadvantage.
Now that Iran is preparing for the post-sanctions era, there is talk of unifying these two exchange rates, potentially within six months after the implementation of the nuclear deal.
One of the pre-requisites of the anticipated unifying of the exchange rates will be reforms in the banking sector to prevent corruption. According to Valiollah Seif, governor of the Central Bank of Iran (CBI), the bank is implementing reforms to maintain financial stability, increase the effectiveness of monetary policies and efficiency of bank loans. Furthermore, the CBI is expanding its supervision of financial institutions according to the Basel III international regulatory framework which includes overseeing capital adequacy, reserve requirement ratio, and bank stress tests.
In anticipation of the unification of the rates, there has been pressure on the Rial. The official exchange rate to the US dollar surpassed Rial 30,000 on 26 November and reached Rial 30,071 for the first time ever. One reason for the Rial’s depreciation against the US dollar has been the weakness of the Euro – the currency that has the highest share in Iran’s basket of foreign currencies. The Central Bank of Iran has planned to decrease the gap between the official and free market exchange rates. However, the recent rise in the free market exchange rate has one again increased the gap between the two rates, and the CBI’s objective for unifying the exchange rates has become harder to achieve.
In order to balance supply and demand the CBI has — according to the president of Iran Foreign Currency Exchange Offices Union Amir Beit Lafteh — tasked five banks to supply US$50,000 per day to each authorised exchange bureau in Iran.
The provision of these funds is designed to prevent a further depreciation of the Rial. Exchange offices are also obliged to sell the US$ through the Sana system (electronic monitoring system to control transactions) and provide an invoice. A total of 421 authorised exchange offices can receive the funds from the five banks. Minister of Economic Affairs and Finance Ali Tayyebnia says that the recent fluctuations in foreign currency market are due to higher demand for foreign currency in the final months of 2015.
A few months ago the official exchange rate started its rally surpassing Rial 28,500 set in the Budget Law 2015-2016. The bull run gained further momentum as the free market exchange rate registered record growth in recent weeks, and this eventually pushing the official rate over Rial 30,000.
