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Experts: Iran should not hurry to change structure of monetary reserves

Business Materials 5 June 2010 17:31
Iran's refusal from the dollar four years ago and re-transition to this currency today shows that this country has no clear strategy in monetary policy. Experts believe that Tehran brings damages to its economy, making interim political steps instead of strategic economic decisions.

Azerbaijan, Baku, June 4 /Trend, D.Khatinoglu, T. Konyayeva/

Iran's refusal from the dollar four years ago and re-transition to this currency today shows that this country has no clear strategy in monetary policy. Experts believe that Tehran brings damages to its economy, making interim political steps instead of strategic economic decisions.

Iranian channel Press TV reported on June 2 that the Central Bank intends to exchange 45 billion euros of its currency reserves to dollar and gold. Despite that Iran has never disclosed the exact currency reserves, in the end of last year, the official Iranian channel İRİNN reported that the country's currency reserves exceed $80 billion.
The rate of euro has fallen by 28 cents since December 2009, professor at Northeastern University, Kamran Dadkhah, Iranian by nationality, told Trend by e-mail. He said that if Iran is trying to sell 45 billion euros, its loss will amount to $12 million. "Now the share of euro in Iran's currency basket amounts to 70 billion, this means that Iran will be forced to agree with another big loss," said Dadkhah.

In 2008, Iranian President Mahmoud Ahmadinejad at the OPEC meeting in Riyadh called the dollar "scrap of paper" and called on OPEC countries to sell oil, using other currencies.

According to Dadkhah, the current reality (depreciation of the euro) and Iran's return to the dollar indicates that all forecasts were wrong and were propagandistic.

During Ahmadinejad's presidency, Iran-US relations became more complicated, and the countries took strong positions with regards to each others. After Ahmadinejad become  president (in 2005), Iran headed for other currencies, moving away from the dollar. In November 2007, Tehran announced that for the first time, the entire sale of its oil was not carried out in dollars, but in other currencies. As a result of the global financial crisis and the falling of dollar, Iran was farther from the dollar.

According to Dadkhan, Central Bank of Iran must not succumb to state propaganda and must conduct a pragmatic policy. According to him, the facts show that the Central Bank of Iran should put an end to bluff on the international currency market.

Earlier, the head of the Central Bank of Iran, Mahmoud Bahmani, said that Iran has won, abandoning the dollar and switching to the euro, and explained it through weakening of the dollar because of the global financial crisis.
According to a former consultant of the Central Bank of Iran Bijan Bidabad, Iran's monetary policy is based on temporary decisions. He said that the wave of financial crisis is in Europe now, but after certain time, it will move towards the East, i.e. the euro will again rise in relevant to the dollar. "Therefore, Iran must be very careful when deciding to exchange euros for dollars," Bidabad said by telephone from Tehran.

Iran's exchanging currency reserves of euros to dollars is linked to the crisis in the Euro-zone countries, and Iran does not want to incur losses because of this crisis. The crisis in Greece, the economic plight in Italy - all these are a fact. However, according to Dadkhan, the policy of the Central Bank of Iran has become a propaganda tool of the government, and all the steps of the Central Bank of Iran do not correspond with its obligations. According to him, the responsibility of the Central Bank is to maintain a stable currency, control over inflation and the banking system.

"If the Central Bank is concerned over the rate of foreign currency, it must streamline its international reserves in commercial operations. In addition, it must create an independent fund, invest all funds there and spend them on strategic investments. All these show that the Iranian Central Bank pursues wrong policies and makes erroneous decisions," said Dadkhan.

Experts are also concerned about correctness of the decision on currency reserves and the exchange of 45 billion euros to dollars. Deutsce Welle stated in its research that Tehran had to take advantage of American bonds, whereas this step is not feasible because of the sanctions.
However Bidabad believes that in addition to U.S. bonds, there are other means of currency exchange, although they are not so common. "45 billion euros is not so huge amount that could not be exchanged by other means. If Iran makes such a decision, there are many opportunities to do so, including Iran may invest its euro reserves in foreign banks, and after certain time, take these funds back in the dollar equivalent, by conversion or by using futures," said Bidabad.

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