The Iran currency situation is becoming more serious as the rial drops to a record low. Economic and political issues have led to a general uncertainty as to Iran’s financial stability. Iranians have been trying to change their rials for US dollars, leading to banks closing their doors to avoid huge queues.
During 2018 alone, the Iranian rial has lost around one-third of its value. In 2013, when Hassan Rouhani became Iranian President, you would get 36,000 rials for one US dollar. Now you can get 60,000 rials. Back in 1979, the time of the Islamic Revolution, you would get only 70 rials for one US dollar, representing a reduction of 85,700% in Iran’s currency vs. the US dollar.
Iran Currency Value Artificially Reset
Iran’s response to this was to go against the market and reset the rial to a new rate of 42,000 to the dollar. Anyone found exchanging the currency at a different rate will suffer severe punishment. According to financial experts, this should halt any further loss in Iran’s currency value. Nevertheless, Iran’s foreign trade, both imports, and exports, will still be under severe financial pressures.
Why is the Iranian currency under so much pressure? Its balance of trade is fairly healthy, with oil sales at $55 billion and non-oil exports at $47 billion giving Iran a positive trade balance of $17 billion. The answer appears to be with the supply and availability of currency notes. The money made by Iran in exports struggles to actually get into Iran.
International banks are not entering Iran for fear of US sanctions being applied to them.
Importance of the Iran Nuclear Agreement
While the Iran Nuclear Agreement that was signed in 2015 removed many of the economic sanctions imposed on it, Iran now fears that this agreement will be dropped by the US after President Trump’s rhetoric against it. This would likely lead to new economic sanctions and further reductions in the value of the country’s currency. The agreement has failed to attract the level of investment that Iran’s leaders had hoped for.
The return of sanctions of any kind could hit the rial hard and increase Iran’s shortage of dollars. Not only that, but since the Iran Nuclear Agreement, moderates have been elected to the Iranian parliament in increasing numbers. Trump’s threats may result in a return to hard-line Islamic rule, particularly if the country’s economy continues to fail.
Iran Currency Must Become More Stable
This would be a disaster for Iran and the US and render any political agreement between the two extremely unlikely. The anti-American Iranian Revolutionary Guard Corps would likely return to its original powerful role of protecting the Iranian Islamic Republic system and its hard-line approach to the West and the US in particular. It is important for the West that the Iran currency resumes a reasonable level of stability.