No luck for investors in Iran without stable currency exchange market

Business Materials 13 January 2016 12:36 (UTC +04:00)

Baku, Azerbaijan, Jan. 13

By Farhad Daneshvar - Trend:

While the cessation of international sanctions against Iran offers a new outlook for a large emerging untapped market, the risk of exchange rate fluctuations remains as a major barrier for drawing the attention of international investors.

It appears that the authorities of Iran Capital Market need to establish an official currency market to contribute to the government's plan for luring $30 billion of foreign investment as the investors would require the provision of hedging currency risks.

It is notable that international trades account for a considerable part of the country's gross domestic production (GDP).

According to Reza Kiani, an official with Tehran Stock Exchange (TSE), over the last Iranian fiscal year (between March 2014-2105) the Islamic Republic exported goods worth at $86,471 million and imported them worth $65,079, which form 37 percent of the country's gross domestic production (GDP) according to the official rate of dollar, and 46% according to the rate in free market, Fars news agency reported Jan. 12.

Iran's President Hassan Rouhani has vowed to improve the country's ailing economy, which has fatally weakened following the West's decision to impose severe sanctions on Tehran's economy and industry due to the country's nuclear program.

In order to settle the nuclear issue, Rouhani conducted direct talks with the US, which eventually led to a landmark nuclear deal between Tehran and the world powers in July 2015 that would scale down Iran's nuclear program in exchange for the lifting of the sanctions.

Now Tehran says that the foreign investors are lining up to get into the country, a claim that is considered by many as a horse trade.

Although lots of foreign trade and economic delegations have visited Tehran since July 2015 when the nuclear deal was signed, Iran still has a long way to go to offer better conditions on numerous issues including bureaucracy, legal and regulatory framework, and its financial and banking system including the currency fluctuation.

Source: Iran central Bank

Coming to the currency fluctuation, the US currency was sold in Iran's free market at 36,660 rials on Jan. 12, compared to 36,918 rials on Jan. 11 and 36,732 rials on Jan. 9. The Central Bank of Iran put the official rate of US dollar, at 30, 130 on January 12 compared to 30, 157 on January 10 and 30,071 rials in late November 2015.

Over the past several years, Iranian national currency has lost its value, as in early 2011, the US dollar was traded at 10,000 rials. The aforementioned figures confirm the idea for establishing an official currency market to hedge currency risks for foreign investors.
Meanwhile, to remove a major obstacle for luring the foreign investors, it appears that the government needs to adopt a unified exchange rate, contrary to the current two-tiered exchange rate system.

Farhad Daneshvar is Trend Agency's staff journalist, follow him on Twitter:@farhad_danesh