If economic sanctions against Tehran are lifted, the flow of $130 billion worth of Iran’s blocked funds coupled with billions of dollars in possible foreign direct investment into the $370 billion economy could be disastrous if a proper currency policy is not adopted.
Farhad Nili, head of the Monetary and Banking Research Institute, noted earlier this week that sanctions have left Iran with "compulsory savings" abroad, an opportunity that he said "must be seized in a best way."
The Central Bank of Iran (CBI) has in the past 18 months focused on curbing inflation, which is an effective factor on the rial’s parity rate against the US dollar as the dominant reserve currency. Inflation, which once stood at 40%, reached 15.5% in the 12 months ending April 20, a great achievement for the moderate administration that took power with an agenda to recover the economy. Late in April, the regulator eventually decided to lower interest rates, putting a 20% cap for deposit rates (down from 22%) and 24% limit for lending rates (down from 28%). Observers believe the third step the CBI may take is a decision to unify the dual foreign exchange rates, a policy the administration has been sitting on since mid-2013.
Some economists believe a unified system could be a boon for Iran's business environment, as it would reduce corruption and rent-seeking, a phenomenon widely believed to be a major setback for the struggling economy. In April, Tahmasb Mazaheri, a former CBI governor, told Nasim Online that the administration “should not waste time by putting off the unification plan for the post-sanctions era.” Sohrab Delangiz, another monetary expert, also believes the dual-rate system gives “wrong signals” to investors. The rial’s value, he argues, should approach a more "realistic" level — possibly around 37,000 rials against the US dollar or as others suggest around 52,000 rials, taking into account the 50% inflation rate collectively registered in Iran and the Organization for Economic Cooperation and Development over the past two years.
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