Newspaper article International Herald Tribune

Iran Relaxes Rules for Trading U.S. Dollar ; as Sanctions Take Hold, Black Market Demand and Rates Have Soared

Newspaper article International Herald Tribune

Iran Relaxes Rules for Trading U.S. Dollar ; as Sanctions Take Hold, Black Market Demand and Rates Have Soared

Article excerpt

Economists said the move to let traders sell U.S. dollars at the unofficial market rate appeared to be a bow to the reality of a burgeoning currency black market amid Western banking sanctions.

Pressured by tightened Western economic sanctions and a burgeoning black market for U.S. dollars, with Iranian citizens desperate to buy them, the Iranian central bank has loosened its strict foreign exchange policy, allowing money traders there to sell dollars for rials at the unofficial market rate, rather than the artificially fixed official rate.

Few Iranian money-changers had been willing to sell dollars at the official rate, 12,260 rials to the dollar, because it was unprofitable for them.

The glaring absence had caused a surge in illicit money-changing in Iran, in which buyers who needed dollars were willing to pay ever- increasing numbers of rials for them, pushing the unofficial market rate to about 19,000 rials to the dollar.

Economists said the eased exchange rate restriction, which was announced on Sunday, appeared to be a bow to reality.

"It was extremely difficult to outlaw a market that the people desperately need," said Djavad Salehi-Isfahani, an Iranian economics professor who teaches at Virginia Tech and has followed the foreign exchange problems confronting Iran. "Iranians were doing this outside the formal market, so letting it become formal was logical."

Dollars and precious metals like gold are coveted in Iran because they have proved to be an effective hedge against the rial's weakness from worsening inflation, estimated to be more than 20 percent a year.

Dollars are also in high demand in Iran because they are needed for travel abroad and for other foreign expenses like overseas college tuition. The appetite for dollars in Iran has put even more pressure on the rial, which has lost about half of its value in the past year.

Economists said the eased exchange rate restriction, which now simply requires money-changers to report the rate at which they sell dollars for rials, would provide the central bank with more precise information about the domestic demand for dollars and enable it to track the disparity between the official rate and the market rate more accurately. …

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