IRAN: SPECULATION GROWS ABOUT THE GOVERNMENT’S MOVE TOWARDS UNIFYING THE “EXCHANGE RATE”
(Mnt Goat: This article is all about Lessons Learned. Even the experts are sometimes fooled. I am bringing you this article today not because we are so much concerned about the Iranian currency, as my blog is all about the Iraqi dinar revaluation not the rial or toman. I believe in information and informing my readers of what is really going on and connecting the pieces for you so you can better understand and learn.
I wanted to share this article because it is an educational article on a discussion about two ways to set currency rates. We can see that Iran had multiple currency rates and maybe this was not such a good thing for their economy.
So, let’s look deeper into what a “unified currency rate” vs having “a multiple currency rate” is and the pros and cons of each. Read the article! If you remember just weeks ago (around Dec 1st) one of the Iraqi economists suggested that the solution to the recent rise of the dollar was to have a multiple exchange rate system.
Really? If you read this article today, you can clearly see why the CBI is stayed away from such a solution.
The CBI has a solution and it’s a massive revaluation of normalization of the dinar and the shift to a new basket of currencies and back to FOREX.
That is their plan.
The CBI already told us many times already that the monetary reserves and the gold can back up the economy and is a safety net for a major crisis (i.e. Covid era) not minor clinches. Just so you know Iraq has only one (1) official exchange rate. The black market rate is not official and is part of the problem and not sanctioned by the CBI as the free market rate is in Iran.
So, in Iran they have what they call a “free market” rate but it is really a legalized black-market rate full of corruption and it allows it to occur. Sad, isn’t it? We can see the impact corruption has on a currency just be studying Iran.
For Iraq, the CBI “official rate” is a suppressed rate, a temporary rate, a benchmark, until they can get their act together and normalize the dinar.
The CBI made any trading of the dollar outside of the “official rate” illegal. That is the difference between the Iranian free market and the Iraqi black market.
Also remember that when this economist made this suggestion of multiple rates for Iraq it was another knee-jerk reaction to what was really going on to a warped sense of the market.
The sudden, temporary spike in the dollar was from the implementation of the SKODA part of ASYCUDA system with limited products for a trial run.
It was the first time it was turned on with these custom fees for a limited number of products. The CBI fully expected the spike and knew it was temporary.
The CBI did not fall into this trap of a knee-jerk reaction by devaluing the dinar. Many of these silly (and stupid) economists even compared the situation to the COVID years. Many articles flew out by all these economists telling of the danger of what was happening and some silly solutions. The issues never occurred and the rate slowly declined not back to 1310 but better even to 1305.
The CBI kept the citizens informed and then articles come out about their independence in making these kind of decisions. They pretty much told these economists to “mind their own business” and to leave the financial management of the country to the experts. They also talked about how speculators could hurt a good economy and so the economists should stop speculating and deal in FACTS.)
The Central Bank of Iraq postponed on Monday the requirement for companies wishing to purchase dollars for importing goods to submit a prior customs declaration until January 2026, with the exception of four specific commodities for which the requirement remains mandatory. This postponement comes after the General Authority of Customs had previously announced that the procedure would be implemented starting Monday, December 1, 2025.
The General Authority of Customs announced the full implementation of the advance customs declaration system at the beginning of next year, to include all imported goods and merchandise.)
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While talk has returned to Iran about monetary policy reforms and the move towards unifying the exchange rate, a report issued by the Planning and Budget Organization shows that the policy of fixing the exchange rate has not only failed to curb inflation, but has also contributed to expanding the circle of rent-seeking and corruption and causing disruptions in production and exports.
In recent days, speculation has resurfaced regarding the initiation of serious reforms to Iran’s exchange rate policies and the government’s move towards adopting a unified exchange rate. While this news has not yet been officially confirmed, the evidence suggests that the continuation of the multiple exchange rate system, instead of curbing inflation and supporting the livelihoods of Iranian families, has become a source of rent-seeking, exacerbated corruption, and disrupted production and exports.
The newspaper “Donya-e-Eqtesad” reported that the Planning and Budget Organization confirmed in a concurrent report that the policy of fixing the exchange rate has not succeeded in controlling prices, but has instead turned into an obstacle to trade procedures in the country.
Some policymakers argue that current conditions do not permit a unified exchange rate, while others believe that multiple exchange rates have failed to curb inflation or support low-income households, instead becoming a mechanism for rent-seeking. Furthermore, global experience shows that economies adopting multiple exchange rate systems are often plagued by high inflation, without any tangible positive impact on their economic performance.
The profit generated by the gap between the official exchange rate (28,500 tomans) and the free market rate (around 132,000 tomans) undoubtedly has beneficiaries who will not easily allow the government to eliminate it. The defense of the multiple exchange rate system by some members of parliament comes at a time when analytical reports from research centers confirm that the preferential currency allocation has failed to control the prices of basic goods.
In the supporting documents for the 2026 budget bill, the Planning and Budget Organization addressed monetary policy and the multiple exchange rate system, outlining its position on the matter. These documents indicated that the monetary policy adopted in Iran, including the preferential exchange rate, the Hall 1 exchange rate, and the Hall 2 exchange rate, has failed to effectively curb the inflationary effects stemming from the high unofficial exchange rate. The documents further stated that achieving economic stability and controlling inflation through monetary policy should focus on achieving sustainable stability in the free exchange market, as fixing preferential exchange rates is an artificial and unrealistic approach.
The report added that the policy of fixing the official exchange rate has become a costly burden on the national economy, particularly on producers and exporters. These costs include weakened exports, increased demand for imports, hindered repatriation of foreign currency earnings from exports, exacerbated capital flight, weakened domestic production, widespread corruption and rent-seeking, and, most importantly, rampant smuggling.
According to some recent studies, the primary reason for the growth in liquidity is attributed to budget deficits and government financial imbalances. In practice, the government is forced to compensate for the budget deficit by printing money and increasing liquidity, which ultimately leads to fluctuations in the exchange rate and higher inflation rates.
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