U.S. economist: Iran will suffer from mutual settlement with Russia in national currencies

Azerbaijan, Baku, Jan. 21 / Trend T.Konyayeva /

Iran's proposal to make accounts with Russia in national currencies [rubles and rials] has not been justified from an economic point of view. Its implementation will negatively impact Iran, Professor at Northeastern University Kamran Dadkhah said.

"This is a political statement without any economic content," he wrote Trend in an e-mail. "But if it is implemented it would be to the detriment of the weaker trade partner, which in this case is Iran."

Last week, Iran offered Russia to use national currencies of the two countries in mutual calculations while implementing joint projects. According to Iran's Deputy Oil Minister Nogrekar Shirazi, the two countries can establish a joint bank that will finance projects. The parties must prepare a legal basis for launching the organizational work on this subject within four weeks.

The main reason for having an international currency is to enable the trading countries to sell to the best customer and to buy from the best supplier. Confining the country to a local currency would be a throwback to prehistoric age, he added.

As far as trade is concerned, confining payments to local currencies would be equivalent to barter trade between Iran and the former Soviet Union during the Communist rule. During that period if Iran exported large quantities to the Soviet Union, it was required to buy an equivalent amount of the Sovet's inferior goods.

"Russia would sell their better quality products to countries where they could earn dollars," the expert said. "Moreover, If Iran's imports exceeded its exports, it was obligated to settle the difference in dollars."

He also noted that the Russian ruble is accepted in certain countries, but the Iranian rial is a local currency. It is accepted as a currency only inside Iran and in small border areas of the adjacent countries. The Russians would not accept rials in payments; they would have no use for it.

Regarding the bilateral projects, Dadkhah said it will hamper the speedy settlement of accounts. The accounts have to be kept in either rubles or rials. But there is no free market to determine a market or fair value of one for the other.

"The exchange rates of the rial to other currencies are managed by Iran's central bank (Bank Markazi)," he said. "Russia would not settle for the managed rate announced by Iran's central bank. It would be to the detriment of Iran if it accepts a Russian dictated exchange rate."

He believes thus, a fair solution would be to convert all accounts into dollars and examine the balance.

As to fluctuations of the ruble and the rial exchange rate towards the U.S. dollar if a decision is made, the expert said that it will not affect the national currencies of both countries, as Russia and Iran do not carry many trade operations.

Russia is not one of the top importers from Iran. On the other hand Russia ranks 13 among countries exporting to Iran. Its value of exports to Iran in 1386 (2007-8) was less than a billion dollars, he added.

Trade turnover between Russia and Iran over the past 10 years does not exceed $2.5 billion a year.

According to Dadkhah, realization of this decision has no effect on the global community, as Iran's trade and investment with Russia hardly exceeds a couple of billion dollars a year.

"It is completely political decision," he said." Indeed, it is worse; it is simply the kind of empty rhetoric that Iran's government is very good at."

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