The first big hit to the rial came in September 2010, when the government announced that long-standing subsidies on basic goods would be ending. About the same time, early rounds of international sanctions designed to persuade Iran to give up its nuclear-enrichment program were implemented, prompting the currency to weaken in value, from 10,500 to 13,000 Iranian rials to the U.S. dollar over just one week of street trading.
Then late last week, as the most punishing sanctions to date were being implemented, the dollar teetered near the 20,000 rial mark for the first time since January, and Iranian officials began to discuss ways to stabilize the currency market.
Proposed responses to the currency crisis have varied widely, including threatening speculators with the death penalty. In recent days, though, the conversation has centered on what steps the state should take to calm public concerns and bring balance back to the currency market. These have included suggestions of a floating rate that would vary based mostly on the price of oil, and a populist plan to establish multiple exchange rates depending on the type of imported good the money is used to purchase.
In an attempt to persuade Iranians to buy dollars from only licensed currency shops, Finance Minister Shamseddin Hosseini warned last Wednesday about the growing presence of counterfeit currency in Tehran. “We are worried about the presence of excitable and inexperienced traders in the professional currency market,” he added.
The street market for foreign currency used to serve mostly businessmen preparing to travel abroad. Having large quantities of dollars didn’t make much sense for others until last year when sanctions made it impossible to transfer money from Iran to foreign banks.
These days there is only a limited supply of dollars at the central bank rate of 12,260 rials, available only to individuals traveling abroad and well-connected companies involved in importing.
Foreign currency speculation has become wildly popular here, as dollars are one of the few investments besides gold and real estate that Iranians deem stable. On Saturday, the price for one U.S. dollar at the Tehran currency bazaar was 19,600 rials.
And because such large amounts of currency are traded at the bazaar, it has become the unofficial, but widely accepted, source of foreign currency rates in Iran. The falling value of the rial has an immediate impact on prices across the country, as retailers set their prices based on the replacement costs of goods, which they know will be much higher as those goods are bought with foreign currency.