Experts: Iran's preference in euro is political decision

Business Materials 13 May 2010 16:53 (UTC +04:00)

Azerbaijan, Baku, May 13 / Trend T. Konyayeva /

Iran's intention to convert the main part of its foreign dollar reserves into euros, according to some experts, is a political decision, according to others, Central Bank does not have the right to conduct such monetary policy.

"Iran's refusal from the dollar is a short-term political solution. Diversification of Iranian currency basket in the euro is a large-scale economic plan, for which Iran does not have necessary conditions," Bijan Bidabad, former adviser to the Iranian Central Bank, told Trend over phone from Tehran.

Iranian Central Bank head Mahmoud Bahmani said at the conference "Export, Finance and Reflections" held in Tehran that a half of the currency basket will be converted from dollars into euros, Iranian media reported.

He said that during the international financial crisis, Iranian Central Bank has earned $5 billion to transfer its gold reserves from dollars to euros.

The order to diversify the currency basket was issued in September by Iranian President Mahmoud Ahmadinejad. Bahmani said that Iranian bank managed to significantly reduce the proportion of the dollar in the currency basket.

Bidabad said that the currency basket of Iran will not suffer large losses from the reduction in the share of dollar in it, as there is slight decline of the euro.

"The current depreciation of the euro is temporary. It was the result of the economic cycle. I do not believe that the currency basket of Iran will suffer great losses from the exchange. This is a small wave, and after a while the status of a currency basket will stabilize," he said.

At the auction on Tuesday the euro reduced again in value compared to the dollar because of concerns that the debt-ridden European countries can face serious difficulties in the way of reducing the budget deficit. The information on the establishment of the multi-billion anti-crisis mechanism in Europe, which appeared last weekend, failed to have a positive impact on the single European currency.

Lack of political stability in Iran is the main reason that official Tehran can not make long-term economic decisions, Bidabad said.

The internal political situation in Iran was deteriorated after the presidential elections in Iran June 12, 2009. Following the elections, Iranian President Mahmoud Ahmadinejad won, gaining more than 60 percent of votes while his main rival Mir-Hossein Mousavi - more than 30 percent. Following the announcement of the results, supporters of defeated opposition leader accused the authorities of rigging the election results and demanded their cancellation. As a result, riots occurred in the country.

What Mr. Bahmani has said is vague and strange and definitely not becoming to the governor of a central bank, Northeastern University, Boston, professor Kamran Dadkhah, said.

Mr. Bahmani's utterance is not worthy of a central banker because the job of a central bank is to protect and stabilize the domestic value of the national currency. No central bank is mandated to speculate in foreign exchange market, he told Trend via e-mail.

Expert said that let us assume that at the beginning of January 2004 (when a euro was worth $1.2592) the Iranian government exchanged $20 billion of its reserves from the dollar into the euro.

December 1, 2009 when the euro was worth $1.51, the government would have gained $5.016 billion.

"In other words over a six year period and by sacrificing any interest rate differentials, the government had earned less than $1 billion per year (to be exact $833 million per year); not a big deal for a country which earns around $70 billion a year in oil revenues. 

Iran is the second largest exporter of oil among OPEC countries. According to BP, on January 1, 2009 proved reserves of oil in Iran amounted to 137.6 billion barrels. Oil production in the country in 2008 exceeded 215 million tons, while domestic consumption of more than 86 million tons.

"The reserves of Iran's central bank should be allocated to different currencies based on the needs of the economy not on the illusion of making profit in foreign exchange market and then losing it overnight, he said.