While the Iranian rial has appreciated in recent days, its drop in value of more than 50% since March has undermined the country’s economic well-being and led to popular protests. Some experts have pointed to sanctions, internal mismanagement and political uncertainties as the causes of the massive devaluation. Others have underlined that the huge differential between the official and open market exchange rates allows for corrupt practices centered around state structures. There is, however, another dimension to developments on the foreign exchange market: Iran's political economy. In this regard, one should ask which segments of society lose out and who wins, and what do economic shifts mean for political power in the country?

For the past four decades, the overall pattern of the Islamic Republic’s political economy has focused on shifting wealth and economic assets from society to the state as a whole, in particular to economic interest groups. These shifts have taken place through dispossession and confiscation of the assets of various social groups, waves of privatization in which state assets have mainly been transferred to the semi-state sector, corruption emanating from the two-tiered exchange rate system, massive embezzlement, commoditization of natural resources, sanctions busting, smuggling and financial corruption.

The pattern has remained consistent: Interest groups with access to government licenses have taken advantage of these licenses to enrich themselves and feed corrupt networks, as reported in Al-Monitor. Such behavior is to the the detriment of the public interest. Perhaps the most prominent example in the recent past is the corruption stemming from the widening differential between the official and open market exchange rates. Indeed, the publication of the names of close to 1,500 entities that obtained hard currency at the previous, “unified” rate of 42,000 rials per US dollar after its introduction in April is a poignant case study in how networks with access to power have abused the system. As one parliamentarian has pointed out, only $2.5 billion out of more than $11 billion in hard currency allocated for imports at the unified rate is accounted for in terms of end use. It is unclear what happened to the other $9 billion.

While the foreign exchange differential remains one of the main sources of corruption, the structural deficiencies in the banking sector that facilitate the illegitimate shifting of wealth from the society to special interest groups is another problem. Iran's financial sector has been characterized by extremely high interest rates in the past three decades, in most years hovering around 15-20% for long-term bank deposits. In addition, various types of credit and financial institutions were in the past decade allowed to offer higher rates, which translated into annual interest rates of up to 26%.