The
rial continued its decline, hitting a low of 36,500 rials to the dollar by mid-morning
on Tuesday, before a strong intervention by the Central Bank of Iran (CBI) halted its downward spiral. Late on Tuesday afternoon, the rial
was being traded at 33,000.
CBI announced late on Monday that it was ready to allocate up to 14.5 percent of the country’s
oil revenues to support the rial. Today's CBI action, if continued in the next few days, selling huge volume of its dollar reserves to purchase rial at open markets, would
determine if the national currency which was on the verge of collapse could be stabilized
again.
UPDATE: In late trading on Tuesday, the rial restarted its decline and is now traded at a historic low of 37,000 to the dollar. Meanwhile, most of currency exchange shops have stopped selling dollars as the supplies have run low and the rate increases have created uncertainties about the rising value of the dollar.
UPDATE: In late trading on Tuesday, the rial restarted its decline and is now traded at a historic low of 37,000 to the dollar. Meanwhile, most of currency exchange shops have stopped selling dollars as the supplies have run low and the rate increases have created uncertainties about the rising value of the dollar.
7 comments:
Iran sells its oil through barter deals and the cash sales a fraction of the actual market price.
In other words the CBI can't stop the downwards spiral of the rial.
Any intervention to prop up the sinking Rial would probably fail. In 16 September 1992 (referred to as Black Wednesday) the British Conservative government wasted £3.4 billion to prop up a sinking pound and failed miserably. At the end they had to withdraw the pound sterling from the European Exchange Rate Mechanism (ERM).
They should let the exchange rate float freely. Yes, this will bring a lot of discomfort in terms of hyper inflation and unemployment, but in longer term the devalued rial would make exports cheap and competitive, while discouraging imports. All they need is a harsh winter in Europe to bring them an injection of massive amounts of foreign currency.
reader--- a harsh winter in Europe will not much help Iran, but will do wonders for the Saudis and Libyans.
market barrel prices may rise, but as iran becomes more heavily dependent on selling to China, the Chinese will demand and get discounts.
Why doesn't iran just expropriate or tax dollar holdings? That will bring the price down.
in the US it's illegal to use a currency other than the dollar. why not in iran?
I couldn't detect one single sign throughout the financial markets, that the Central Bank of Iran in fact is supporting the rial by purchasing foreign currencies.
I also couldn't detect any signs the rial is falling against the Euro.
It only seems to fall against the dollar, which signifies close to nothing as the trade volume in the dollar-rial currency pair is extremely low.
CORRECTED VERSION:
I couldn't detect one single sign throughout the financial markets, that the Central Bank of Iran in fact is supporting the rial by selling foreign currencies.
I also couldn't detect any signs the rial is falling against the Euro.
It only seems to fall against the dollar, which signifies close to nothing as the trade volume in the dollar-rial currency pair is extremely low.
Anon 2:35 AM,
Rial-Euro ratio is also at historic low. If the rial is plummeting faster against the dollar than other currencies, because the main demand in the Iranian market is for the dollar. Also, most of the country’s foreign transactions are quoted in dollar, with oil topping that list and oil revenues constituting the country’s principle forex source. The imports into the country are also by and large conducted through dollar transaction. Falling rial signifying “close to nothing” is a gross misstatement.
Post a Comment