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History repeats itself in Iran's currency exchange market

The Iranian rial continues to lose value against foreign currency, as exporters face high costs due to sanctions and the government continues a policy of forcing them to accept low exchange rates.
The picture illustrates United States 100-dollar bills bearing the portrait of US statesman, inventor and diplomat Benjamin Franklin next to Iran's various Rial banknotes, bearing a portrait of Iran's late founder of Islamic Republic Ayatollah Ruhollah Khomeini in Tehran on January 18, 2012. The Rial's plunge, to 18,000 to the dollar hit a record low on January 18, based on rates in black market trading that the government has tried to ban. AFP PHOTO/ATTA KENARE (Photo credit should read ATTA KENARE/AFP via

The currency exchange market in Iran is experiencing another volatility cycle with the Iranian rial (IRR), losing its value repetitively against foreign currency. The volatility cycles have become a frequent event in Iran’s economy, and no one finds them surprising. However, the government’s response to the increased ambiguity and volatility cycles remains the same. The Iranian authorities and policymakers always search for an individual or a group of individuals to blame for the unfolding crisis, since their adopted macroeconomic policies and monetary measures remain irreproachable. As the Iranian government refuses to learn from the past and the present episodes, it is doomed to repeat history. And ordinary Iranians pay the price.

The Iranian government is utterly reluctant to adopt a single currency exchange market; it has divided the markets and created a puzzling bureaucratic labyrinth when it comes to exchanging currency. Believing in the myth that if it controls hard currency resources and manipulates the currency exchange rate, it can restrain inflation. In other words, the Iranian government believes if it sets the exchange rate, it is controlling domestic prices. Consecutive administrations have adopted this approach for the past 40 years, and it has never lowered the inflation rate. As a result of this policy, the currency exchange market in Iran is a fractured multilayered singularity, including several submarkets offering ample opportunities for corruption. While the Iranian authorities are blaming exporters for the recent fall in the value of the rial, one has to point out that the currency exchange market in Iran favors imports and discourages exports.

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