Dual Exchange Rate: A Possibility? - UPDATE

The Central Bank of Iran (CBI) has continued keeping the official exchange rate at around 1,000 toumans (10,000 rials) per dollar. This in spite of a sharp drop in rial’s value in Tehran’s exchange markets in the past two days. On Tuesday, rial hit an all-time low of 12,950 per dollar, a 19% drop in value against dollar, although it recovered somewhat on Wednesday, quoted above the 12,100 mark.

Unless the CBI intervenes on Thursday by injecting huge amounts of dollars to defend its official rate, or devaluate rial altogether, we might expect another period of dual exchange rates in Iran, the official rate set by CBI, and the commercial rate set in the exchange markets.

The unexpected free fall in rial’s value on Tuesday took many observers by surprise. Although many experts were expecting a gradual devaluation of rial as a result of severe financial sanctions against the country, the magnitude of rial’s drop could signal a near panic in Iran’s financial markets.

Photo: banknotes.com

UPDATE: On Saturday 2 October, CBI raised its official rial-dollar exchange rate to 10,690 rials per dollar, effectively a 5% devaluation of the official rate that was previously set at 10,200 rials.