After months of volatility and devaluation of the national currency, the Central Bank of Iran (CBI) introduced a new policy package on Aug. 5 that so far has failed to calm the foreign exchange market. The daily fluctuations persist and foreign exchange bureaus have been reluctant to buy or sell hard currency, protesting the CBI’s mercurial policies. Thus there is a need to take a closer look at the CBI’s policy package and its potential impact on the economy in general and the value of the rial in particular.
There is no doubt that political and psychological factors have unsettled the foreign exchange market, but it is also clear that the government and CBI have failed to balance supply and demand at this crucial juncture. A closer look at the recent decisions with regard to foreign exchange rates exposes the structural weaknesses that negatively influence the economy.
