* Irans currency run on USD
Jan. 12 (Bloomberg) — In Tehran’s shopping district, a crowd gathers round a man standing on a raised platform with arms aloft to display his merchandise: a stack of 500-euro bills.
The Bazaar Arz, the narrow 19th-century arcade that’s the center of Iran’s foreign exchange market, is crammed with people trying to sell their currency as sanctions tighten and tensions with the U.S. escalate. In nearby shops, imported laptops and smart-phones change price hourly. The rial weakened 20 percent in the past month at the official rate offered to Iranians traveling abroad, and by even more in the bazaar, where demand for dollars and euros is surging.
It’s increasingly tough for Iranians to satisfy that demand. Websites posting currency rates were blocked last week, many official change bureaus were closed, and the government has halved the amount of dollars that Iranians planning trips abroad can buy. Central Bank Governor Mahmoud Bahmani denied the sanctions are causing problems, then linked the rial’s plunge to the political standoff. “The enemy is depending on creating psychological tensions,” he said. “If we are intimidated, we will be playing into the enemy’s hands.”
The rush for hard currency shows those tensions spreading among Iranians, even before the latest sanctions are fully implemented. The U.S. and European Union are moving toward an embargo on oil purchases from the world’s third-biggest exporter and restricting dealings with its central bank.
‘Real Pressure’
“The run on Iran’s currency is significant because it shows the sanctions are having a true impact,” said Ted Karasik, director of research at the Dubai-based Institute for Near East and Gulf Military Analysis. “Iran, while being extremely clever with skirting around previous rounds of sanctions, is perhaps facing real pressure this time.”
President Barack Obama signed legislation on Dec. 31 to deny access to the U.S. financial system for companies or countries that do business with Iran’s central bank. The EU is discussing the terms of an oil embargo and may adopt it this month. Obama and his allies say the sanctions aim to halt what may be a covert effort by Iran to acquire nuclear weapons.
Iran says its atomic program is for peaceful purposes. Vice President Mohammad Reza Rahimi said on Dec. 27 that Iran may close the Strait of Hormuz, passageway for about a fifth of globally traded oil, if sanctions are imposed. Crude jumped to an eight-month high above $103 a barrel last week.
Before the sanctions, growth in Iran’s $480 billion economy was set to accelerate on higher oil prices. The International Monetary Fund predicted an expansion of 3.4 percent this year in an August report, up from 2.5 percent in 2011.
‘Symbolic Defeat’
The central bank’s official exchange rate today was 11,262 rials per dollar, according to its website. The second official rate, offered to Iranians who can prove their foreign travel plans, was 13,630 per dollar, up from 10,800 less than a month ago. Iran last week halved the maximum amount of foreign currency that would-be tourists can buy to $1,000. At the Tehran bazaar, the rate was 16,900.
The trifurcation of exchange rates is “a symbolic defeat” and “embarrassing for the leadership,” which has spent two decades trying to eliminate such differentials, said Kevan Harris, a researcher at Johns Hopkins University who visits Iran often. “Because there’s no functioning currency market in the traditional sense, the swings in prices become much wider.”
Parliament passed a law on Jan. 8 to penalize unofficial currency trades, with the penalty set at twice the transaction amount. The law hasn’t yet been implemented and it’s not clear when it will enter force.
‘Economic Shock’
The central bank will increase the rates that banks are required to pay on deposits to above the inflation rate, as it seeks to ease currency volatility, the official Islamic Republic News Agency reported yesterday, citing Kazem Delkhosh, a member of the central bank’s Council of Money and Credit. Bank deposit rates currently range from 12.5 percent on one-year money to 15 percent for five years.
Inflation is 20.6 percent, IRNA said. Prices have surged since Iran scrapped more than $50 billion of subsidies, mostly on energy, a year ago under a plan praised by the IMF. Inflation, which has averaged about 15 percent in the past decade, according to IMF data, may reach 21.6 percent by the end of the Iranian calendar year on March 19, if the country doesn’t experience any “economic shock,” Deputy Economy Minister Mohammad-Reza Farzin said on Dec. 20.
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