THREATS AND PERSUASION—Why Iran’s government is likely to win the battle of wills over currency

THREATS AND PERSUASION—Why Iran’s government is likely to win the battle of wills over currency

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Analysts said the government's likely response to the stand-off would be to shift more currency trade out of the market and into official channels.

October 9, 2012 10:15 by Reuters

The slide in the rial is boosting inflation, officially at around 25 percent already, as imported goods become dearer. Last week riot police clashed near Tehran’s Grand Bazaar with crowds protesting at the currency’s drop, while Ahmadinejad is under fire from parliament for his economic management.

So the government is eager to stabilise the exchange rate. Its failure to do so in the last several days suggests it may have to close down the legal free market entirely to establish control of the currency, analysts said.

“The end result will be the government taking over currency trading, squeezing out the private traders or forcing them to bow to the government for patronage,” said Mohammad Ali Shabani, an Iranian political analyst based in London.

“This will give the government leverage as it prepares for tighter sanctions in the next 20 months.”

THREATS

Over the last several days, the government has tried to impose its will on the currency market with a combination of threats and persuasion.

The Iranian Money Changers Association, a state-licensed body, recommended its members sell dollars at 28,500 rials – a discount of about a quarter on last week’s free market rate.

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Tags: Iran, iran currency, iran currency increase, stablising