Economic Shock In Iran As USD Rises To 500,000 Rials

Monday, 02/20/2023
Maryam Sinaiee

A British Iranian journalist and political analyst and a regular contributor to Iran International

Iran’s rial fell to a new low Monday, breaking a crucial threshold despite repeated government promises of “soon” strengthening the battered national currency.

The rail fell to more than 500,000 against the US dollar from 460,000 only a week ago and 300,000 in late August. Parallel markets including gold, gold bullions, and even vehicles, both domestically produced and foreign made, will immediately reflect the change with higher prices. Essential food items, such as red meat, have already risen to unprecedented highs, making them unaffordable to the majority of people.

The British pound climbed to 600,000 rials and the euro was trading at around 535,000.

Many businesses, such as car dealerships, have already stopped trading while the general population tries to best preserve the value of their savings by making small investments in such commodities.

Further depreciation of the rial in the coming year, many say, would be certain if the situation is not somehow remedied. In a speech Saturday at the residence of Supreme Leader Ali Khamenei to civil and military officials and foreign ambassadors, President Ebrahim Raisi once again promised to bring inflation and the fall in the value of the national currency under control but failed to explain his envisaged solutions to the problems.

Two months ago, when one dollar traded for around 390,000 rials, government spokesman Mohammad Mokhber tried to reassure the public that the fall of the rial was only “temporary”. Other officials including those from the Central Bank of Iran (CBI) continue to make similar statements and promises.

Pensioners marching on Sunday, demanding food on their tables

Shiva Ravoshi, A CBI official, said Sunday that “the bubble in the currency exchange market” would definitely burst and advised people not to make rash decisions over purchasing foreign currencies. She also claimed that with new policies and changes to be introduced by the CBI “soon”, all of the country’s needs for foreign currency will be met and the situation will improve.

But this is what officials have been saying since early 2018 when the currency began to fall once markets anticipated a US withdrawal from the JCPOA nuclear deal.

Some pundits, such as conservative economist Hossein Raghfar, suspect that the government is intentionally pushing up foreign currencies to sell its own stock at higher prices to make up for its budget deficit. “This is the game that the government is playing itself because it’s the end of the year and they have no resources for paying employees’ bonuses and salaries,” he said Friday.

The Iranian currency has fallen 14-fold since the United States pulled out of the 2015 nuclear deal and imposed crippling economic sanctions. With further nuclear talks uncertain, the economic fundamentals work against the rial. The government boasts of large clandestine oil exports, mainly to China, but the fact remains that it faces a more than 50-percent budget deficit.

The drop in the value of the rial is expected to wreak havoc in the lives of many Iranians as the calendar year draws to a close and consumers prepare for the New Year shopping in March.

On Sunday retirees with fixed pensions, whose standard of living has dropped to unprecedented levels, staged rallies outside the Social Welfare Organization in the southwestern cities of Shush and Ahvaz. “Enough oppression! No food on our tables!” and “Inflation, high prices killing people!” retirees chanted. This was a small sign of what may still come amid a rebellious mood among the people.

The impact of rial’s steep fall will be highly reflected in the actual value of the government’s proposed minimum wage increase of 20 percent for the next year. Since early January when the budget bill was presented to the parliament, the rial has fallen by around 20 percent. Many commodities already cost at least 20 percent more than the wage increase which will come into effect on March 21.

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