Banking Sanctions and its Impact on Iran

The chance of dismantling banking sanctions and unfreezing billions in forex assets in foreign banks represents the main driving force behind the sharp decline in currency prices in the last couple of days. A press release of the Central Bank of Iran is full of interesting details. In this press release, the head of the central bank Abdolnasser Hemmati rejected claims. He said there are political motives behind the falling currency prices.

Abdolnasser Hemmati said the positive expectations from the lifting of sanctions affected the situation. He also mentioned another factor which is the frozen forex assets in several countries. Hemmati believes that after taking into account all factors a decline in forex rates is logical.

Negotiators are trying to revive the 2015 nuclear deal officially known as the Joint Comprehensive Plan of Action (JCPOA). Several years ago, President Donald Trump rejected that deal. He made the decision to reimpose the toughest sanctions in history against Iran’s economy.

Iran, its currency, and the U.S. dollar

Currency prices started to decline several weeks ago and rates fell to the news lows in the past several days. On Sunday, the U.S. dollar lost more than 4.5% or 10,100 rials to reach 219,700 rials in Tehran’s free market. That was the worst result in three months.

The dollar further fell to 218,000 rials May 3, posting a 0.8% decline compared to a session earlier. Markets in the country were closed on Tuesday due to a religious holiday.

Hemmati made it clear that the central bank has no intention to change its position. The central bank will continue to intervene in the market and try to stabilize rates based on the supply and demand mechanism.

Moderate optimism about progress in the nuclear talks perturbed most currency dealers pushing them toward panic selling. Traders are monitoring the situation, as in the case of successful negotiations, the real may rebound.

Apart from political developments, there is another factor as well. The lack of strong demand for currency especially in the secondary market is an important factor.

Last week the Central Bank of Iran said export companies sold forex hawala worth $4.5 billion to Nima in the calendar month to April 20. Nima is a Persian acronym for a trading platform affiliated with the Central Bank of Iran. Exporters sell their overseas proceeds and companies pay for imported goods through Nima.