In Iran, the value of the national currency is not only seen as a function of Central Bank policy, trade balance and inflation. In the absence of reliable consumer and business confidence indices, it has been perceived as a key indicator of the general state of the economy, and more broadly, the country’s international standing. Indeed, it is virtually impossible to engage in any private discussion in Tehran about the national currency without a mention of how the greenback once traded for 70 rial. This has been particularly the case in the past few years, when successive devaluations have been triggered by Western sanctions.
In 2002, Iran introduced a single exchange rate after years of maintaining a multi-tiered currency market, which among other adverse effects facilitated immense revenues for those able to take advantage of the arbitrage. Over the following decade, the Iranian currency maintained relative stability and kept being overvalued, thanks to Central Bank intervention. This system collapsed in 2012, when hard-hitting financial, economic and oil sanctions were imposed by the European Union and the United States. As a result, the multi-tiered exchange market re-emerged. Between 2012 and 2013, the divergence between the official and open market rates reached as high as 300%. This collapse in confidence triggered a rush for foreign exchange, precious metals and property, aided by low rial bank deposit rates amid high inflation.
