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How Iran dropped dual exchange rates but ended up with four

While the Rouhani administration is taking steps toward stabilizing the rial, its rate unification policy has in effect resulted in a multi-tiered exchange rate regime.
A money changer poses for the camera with a U.S  hundred dollar bill (R) and the amount being given when converting it into Iranian rials (L), at a currency exchange shop in Tehran's business district, Iran, January 20, 2016. REUTERS/Raheb Homavandi/TIMA  ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY. - GF20000100969

The devaluation of the Iranian rial first gained serious steam back in April, partly due to fears of returning US sanctions. As such, the administration of President Hassan Rouhani on April 10 implemented what it called a rate unification policy in order to prevent further depreciation of the national currency. Market fears were found to be justified when US President Donald Trump on May 8 decided to withdraw from the Joint Comprehensive Plan of Action. At the time, this author argued that the rate unification was a last resort that could prove to be a step in the right direction, if implemented correctly. Fast forward to the present, and the rate unification is full of holes as a result of the administration’s misguided approach.

Indeed, there was never truly a unification of Iran’s dual exchange-rate regime. The government unilaterally set the exchange rate of the US dollar at 42,000 rials and simply ignored the open market rate, which valued the dollar almost 50% higher at the time of the rate unification. By branding any exchange of foreign currency outside the unified rate as tantamount to “smuggling,” the government only transformed the open market into a black market. The latter has since increasingly become a breeding ground for speculative activities. What is more, the rate of the greenback on the black market has jumped from 60,000 at the time of the rate unification to 79,000 rials June 26.

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