{"id":250838,"date":"2021-11-16T03:27:58","date_gmt":"2021-11-16T08:27:58","guid":{"rendered":"https:\/\/www.ncr-iran.org\/en\/?p=250838"},"modified":"2023-01-19T12:49:52","modified_gmt":"2023-01-19T11:49:52","slug":"economic-consequences-of-eliminating-the-official-exchange-rate-in-iran","status":"publish","type":"post","link":"https:\/\/www.ncr-iran.org\/en\/news\/economy\/economic-consequences-of-eliminating-the-official-exchange-rate-in-iran\/","title":{"rendered":"Economic Consequences of Eliminating the Official Exchange Rate in Iran\u00a0"},"content":{"rendered":"

\"Newly<\/span><\/p>\n

The Iranian regime\u2019s new president, Ebrahim Raisi<\/a>, introduced a plan to the parliament to remove the official dollar exchange rate of 42,000\u00a0rials. According to many of the regime\u2019s economic experts, this is a dangerous decision and would increase the inflation and prices of consumer goods.<\/span>\u00a0<\/span><\/p>\n

This decision comes at a time when Iran\u2019s economy is at its most \u201cdangerous historical point\u201d in the past four decades, according to Majid-Reza Hariri, the Chairman of the Iran-China Chamber of Commerce, on Friday.<\/span>\u00a0<\/span><\/p>\n

Iranians suffer from increasing inflation rates and skyrocketing prices. While there are several speculations about the origins of Iran\u2019s economic crises, all clues hint at the regime\u2019s plundering, corruption, and\u00a0poor\u00a0economic policies.<\/span>\u00a0<\/span><\/p>\n

The origins of\u00a0the “official\u00a0rate\u201d<\/span><\/i><\/b>\u00a0<\/span><\/p>\n

Hassan Rouhani\u2019s government decided to \u201cunify\u201d the free market rate with the official exchange rate. The official exchange rate is 42,000 rials to $1. This official rate was\u00a0only\u00a0supposed to be\u00a0used to import essential goods. Yet, the regime soon recognized other foreign exchange rates\u00a0<\/span>as the official rate\u00a0<\/span>quickly became inefficient.<\/span>\u00a0<\/span><\/p>\n

Major\u00a0protests began\u00a0in Iran\u00a0in January 2018<\/a> due to the skyrocketing prices. When the United States pulled out of the nuclear deal\u00a0in\u00a0May 2018\u00a0and reimposed sanctions on Tehran, the dollar exchange rate rapidly increased.<\/span>\u00a0<\/span><\/p>\n

Rouhani\u2019s government introduced the official exchange rate to prevent the expansion of daily protests and control the market. In March 2017,\u00a0Eshag\u00a0Jahangiri\u00a0announced that the \u201ccurrency required by all sections\u201d would be provided at the exchange rate of 42,000 rials to $1.\u00a0This\u00a0later became known as \u201cJahangiri\u2019s\u00a0currency.\u201d\u00a0<\/span>\u00a0<\/span><\/p>\n

This official rate was supposed to be used to import the country\u2019s essential materials, most notably\u00a0food\u00a0items. Many economic experts\u00a0recognized this as\u00a0unofficial\u00a0subsidies intended\u00a0to control the prices of essential goods. Yet, the official rate was used by the regime\u2019s insiders to import\u00a0luxury\u00a0goods\u00a0that\u00a0ordinary Iranians could not afford.\u00a0<\/span>\u00a0<\/span><\/p>\n

\u201cIn 2019 alone, around $15 billion [based on the official exchange rate] was spent on importing various items,\u201d\u202f<\/span>wrote<\/span><\/a>\u202fFars News Agency on November 7, 2021. \u201cBesides all this fuss,\u00a0Rouhani\u2019s government\u00a0was virtually incapable of controlling prices. Surveys show that based on the free-market exchange rate in that year, the importers embezzled around 5.1 quadrillion rials.\u201d<\/span>\u00a0<\/span><\/p>\n

By giving $15 billion worth of currency, Rouhani increased his government\u2019s already high budget deficit. To compensate for its budget deficit, Tehran has been\u00a0printing banknotes ever since.\u00a0Since\u00a0the resulting increase in\u00a0liquidity\u00a0greatly exceeds\u00a0Iran\u2019s production rate,\u00a0inflation and\u00a0prices are\u00a0skyrocketing.\u00a0The\u00a0liquidity surplus\u00a0also created\u00a0artificial demand\u00a0and price increases for\u00a0many raw materials used\u00a0by automakers.\u202f<\/span>\u00a0<\/span><\/p>\n

According to Fars News\u00a0Agency, since Rouhani\u2019s government \u201chad\u00a0a limited source of currency\u00a0and was unable to provide importers with sufficient currency, it created the NIMA rate. Thus, finally, it had to resort to banknote printing\u00a0to compensate for\u00a0its resulting budget deficit.\u201d<\/span>\u00a0<\/span><\/p>\n

NIMA is the Persian acronym for an online currency system\u202f<\/span>launched<\/span><\/a>\u202fby the regime\u2019s Central Bank. NIMA was created\u00a0so the regime\u2019s Central Bank\u00a0could pay\u00a0for imports of food, medicine, and other essential goods\u00a0despite the devaluation of the Iranian rial. NIMA\u2019s\u00a0rate hovered around 170,000 rials to $1. This rate was very close to the free-market exchange rate, which has been varying from 200,000 rials to nearly 300,000 rials for $1. In other words, when the NIMA rate increases, the prices of durable goods increase\u00a0in parallel, resulting in\u00a0higher\u00a0consumer costs.<\/span>\u00a0<\/span><\/p>\n

<\/div>
The Revolutionary Guards\u2019 Financial Empire<\/div><\/div>
<\/div>
<\/div>
<\/div><\/div><\/div>