The foreign exchange policies that have emerged in Iran in the aftermath of the sudden devaluation of the national currency have not only worsened the sense of instability in Iran’s economy, but also paved the way for an increase in smuggling. Incidentally, smuggling is taking place in both directions, into and out of the country, damaging the overall trade and payment balances and economic performance as well as intensifying corrupt practices.
In a healthy economy, the devaluation of the national currency — though inflationary — could theoretically lead to a growth in exports and a reduction in imports. Such an outcome could benefit domestic industry, which would become more competitive in export markets and also against imported goods. However, the existence of economic distortions such as subsidies or multitiered exchange rates can lead to scenarios in which a currency devaluation can undermine overall economic performance. What Iran is experiencing today is a reminder of how mismanagement of economic affairs can hurt a resourceful economy.