Iranians feel the pain as currency dips
TEHRAN, IRAN | At money-changing stations across Tehran, shouting voices accompany each change of the signboards out front showing the value of the Iranian rial, which slips ever lower against the U.S. dollar.
This week saw Iran’s currency fall to 41,600 rials to $1, its lowest point ever.
While making Iranian exports more attractive to the global market in the wake of the landmark nuclear deal with the U.S. and other world powers, it also means people’s savings continue to lose value in the Islamic Republic. Meanwhile, concerns gather about what President-elect Donald Trump might mean for the nuclear accord going forward, even as most Iranians have yet to feel any change from the agreement.
“Surely, this negatively impacts people’s lives. Lots of foreign goods are imported into our country, and many of the things people need come from abroad,” said a Tehran resident who only gave his name as Babaei. “It also has a very negative psychological effect on the people.”
The currency collapse could prove a political headache for President Hassan Rouhani and other relative “moderates” on the Iranian political spectrum. The president strongly pushed the nuclear accord in the face of fierce resistance from hard-liners, and needs to show the economic payoff from the concessions the government made ahead of next May’s presidential election.
Conservative newspapers inside Iran are already slamming the Rouhani government’s handling of the currency fall, the Iranian FARS news agency reported this week.
In that last 10 years, Iran has seen the rial go from around 9,200 to $1 to 41,600 to $1, a depreciation of some 450 percent. Much of that collapse came in 2012 over the country’s contested nuclear program, when the U.S. banned the world’s banks from taking part in Iran’s oil economy and the European Union imposed an oil embargo.
Under the 2015 nuclear deal between Iran and world powers, international sanctions against the country were lifted in exchange for Tehran agreeing to limit its enrichment of uranium. In the time since, Iran has rushed to increase oil production to regain its lost market share while simultaneously signing deals worth tens of billions of dollars with foreign companies, including the major airplane manufacturers Airbus and Boeing Co.
But the rial, initially buoyed by the accord, has now fallen on hard times. While those who could long-ago offloaded their rials for other investments, average Iranians have faced harder times.
“This is tragic to me,” said Ahmad Heidari, a 64-year-old retiree. “I have lost 20 percent of my purchasing power with this exchange rate because all prices are going up harshly.”
There are a host of reasons contributing to the rial’s descent. Since Mr. Trump’s election and a recent Federal Reserve hike in interest rates, the U.S. dollar has been strengthening. Meanwhile, Mr. Trump’s still-unclear campaign promise to renegotiate the Iran deal has sparked uncertainty.
Iran’s government in the past has manipulated its currency market to cover government budget deficits. It does that through using the difference between the lower government exchange rate and the higher market exchange rate to gain rials from oil sales, a move known in the financial world as arbitrage.