Iran's Currency In Freefall As Protests Sweep The Country
Mardo Soghom
Iran International
Iran's battered currency, the rial, was in a freefall on Saturday, hitting a historic low of more than 360,000 against the US dollar amid continuing protests.
Iran International
Iran's battered currency, the rial, was in a freefall on Saturday, hitting a historic low of more than 360,000 against the US dollar amid continuing protests.
Since August, when there were some hopes for a nuclear deal with the United States, the rial has lost more than 20 percent of its value, hit by the double impact of an impasse in the negotiations and nationwide protests.
The Iranian currency fell almost 20,000 points after the Friday weekend, from around 340,000 on Thursday to 360,000 when the markets reopened on Saturday. By evening, the rial made slight gains in what could have been a central bank intervention, but the fate of the currency remains bleak.
It is not clear how much foreign currency the government has injected into the market since the first week of September when the rial began to fall. Often, the Central Bank of Iran (CBI) withholds such information.
There have been unconfirmed reports that people associated with the government have been sending their capital out of the country as protests show no signs of stopping. Unlike past nationwide unrest, this time it is clear that protesters want an end to the clerical regime of the Islamic Republic and will not be easily satisfied with minimal concessions, even if the hardliner core of the regime decides to offer an olive branch.
The government insists that it is successfully circumventing US sanctions on its oil exports, selling more than one million barrels of crude per day, mostly shipped to China that silently ignores Washington's threat to penalize third parties for buying Iranian oil.
However, it is not clear how much discount Tehran is offering Chinese buyers and how much foreign currency it receives despite parallel US banking sanctions. Some have argued that most of Iran's oil is shipped in lieu of goods in illicit barter trades, which according to former Tehran officials costs the country more than 20 percent in lost value.
The freefall in the exchange value of the rial signals insufficient CBI resources to effectively intervene in the market. A relatively stable rial is politically vital for a government under siege by growing protests.
During the 1979 Iranian revolution the rial stayed at 70 to the dollar until after the overthrow of the monarchy when the currency began its 43-year-long decline, which has surpassed a 5,000-fold loss of value.
The unprecedented currency crisis will have a direct impact on inflation and especially food prices, which can lead to more people joining the protests and severely destabilizing the government. Annual inflation is already around 50 percent and food prices have risen by 100 percent since last year.
While the clerical regime still has hundreds of thousands of Revolutionary Guard troops, Basij militia and vigilantes to confront the people on the streets, and no major defections have been reported so far, the currency crisis will contribute to an image of a government in disarray, facing its most serious crisis in 43 years.
So far, hardliners in charge of the military, the presidency and parliament have shown no willingness to compromise with the populace, but even major concessions may prove to be insufficient to quell the young generation that has tasted success in defying a fearsome suppression machine fore almost 7 weeks.
The government is talking about a 20-percent raise for workers in its sprawling state-sector economy, but the rial's steep fall has already eaten away at any benefit for workers who make less than $200 a month.
On the contrary a big raise at this point would mean that the CBI has to print more money and push the inflation rate higher.
