By Amir Taheri
Headlines blazing Iranian rial dives as sanctions start to bite, were seen from the Financial Times and Washington Post, as if a delighted bully setting a trap on a younger student and finally having his trap spring and cause pain. In those same articles once you start to read into the details, you notice that the article itself has little evidence of sanctions playing a factor for the reduction of the rials sudden value drop. They claim instead after talking to sources in Iran that this move was caused by the Central Bank withholding foreign currency to exchange houses and as more businesses started receiving the reply “we are currently low on dollars and euros” the price did what it always does when supply is reduced and increased. They further go on to explain this was a good way for the Central Bank to come back and sell their foreign currency at a higher price thereby making a profit to plug a budget gap for this year.
So are sanctions “biting” or was this a plan to make a quick buck before the subsidies removal kicks in? Well if you believe the two above news outlets, the reasons for the quick reduction in rials value were not due to sanctions biting. But, is Iran introducing a 2-tier currency system? Iran had such a system in the 90’s and moved away from this as it brought imports under control and hard currency started piling up in the state coffers after the oil boom. Iran still maintains anywhere between 80 billion to 100 billion dollars in foreign currency reserves so there is no lack of it to sell to exchange houses. Yesterday the Central Bank announced it was offering as of today unlimited foreign currency and gold to bring prices under control. Iran has also been planning to remove 3-4 zeros off of the rial to make life easier for Iranians and has brought inflation under control before this plan can be implemented so it would be a huge reversal to all of a sudden change directions and allow for a 2-tier exchange system now. Especially since it has spent nearly the last decade ensuring that the rial has no huge price fluctuations in value.
I have been reading such headlines for the past couple months and expect to read many more in the months to come as the western media continues with its media propaganda. President Ahmadinejad should not have been surprised when in his last interview with Fox news in New York the interviewer seemed angry at him and Ahmadinejad asked, “you seem to be yelling at me, are you not fair and balanced as a reporter or are you working for the US government?”
Financial Times article: Iran’s rial dives as sanctions bite