Iran's currency market is a good-looking car with weak engine

Business Materials 8 February 2016 18:26 (UTC +04:00)

Tehran, Iran, Feb. 8

By Mehdi Sepahvand, Farhad Daneshvar - Trend:

While a couple of areas of Iran's economy such as the Tehran Stock Exchange (TSE) have positively reacted to the implementation of the Joint Comprehensive Plan of Action (JCPOA/nuclear deal), the country's traditional currency market still remains indifferent to the landmark political development, a recent survey carried out by Trend in Tehran, Iran's capital city, suggests.

A group of dealers operating official currency exchange outlets around Ferdowsi Square, the center of Tehran's currency exchange trade, have suggested that the currency market still suffers from fluctuation and they have not felt the imminent impact of the removal of sanctions on their business.

"Market is volatile, but our business is pretty much the same," a young currency trader replied to Trend's question whether the removal of sanctions has had an impact on their business.

Following the removal of economic sanctions against the Islamic Republic on Jan. 16, several observers have suggested that the possible flow of funds from foreign countries to Iran may help to stabilize the fluctuating market.

However a middle-aged man introducing himself as a currency market expert opposed the idea suggesting "the foreign companies' business in Iran will not have a significant impact on the currency market as their money will not be directed to the market. Their money will be transferred to bank accounts in Dubai."

Responding to a question on attempts made by the Central bank of Iran to control foreign currency rates in the country a trader said "the Central Bank could not feed the market with enough foreign currency, that's why they went back up after a short period of lowering."

However, another man who seemed to be in the business for a long time argued that fixing the currency rates would help to stabilize the market.

"The government is everything, the market will move according to governmental decisions," he added.

Meanwhile a group of traders refused to forecast the future of the currency market in the wake of the sanctions removal saying sentences such as "right now the market is a little low", "I cannot say what effect that will have on our business", "we should wait and see" and "nowadays, people come for small amounts of money to exchange".

The licensed shops are not the only currency traders in Iran as dozens of black market traders sinking their heads deep in their black jackets to endure the cold clutch small calculators and large stacks of cash just outside the authorized exchange outlets in Iran's currency hub Ferdowsi Sq. approach people whom their sixth sense has identified as customers and quietly let them know they exchange currencies for a little more profitable rate.

On the black market, one US dollar buys a bit more than 35,584 rials in licensed shops, while the official rate remains at 30,180.

While the removal 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.

Over the past few months several Iranian financial analysts have shouted the need for establishing an official currency market within the framework of the Iranian Capital Market as the foreign investors would require the provision of hedging currency risks.

Iranian President Hassan Rouhani's government has been developing plans for luring $30 billion of foreign investment in the post-sanctions era to renew the country's aging industry and ailing economy.

Over the past decade in a bid to curb Iran's nuclear program, the international community took measures against Tehran, including restrictions imposed on the country's financial system, as well as industry, which have had a catastrophic impact on Iranians' economic situation and life conditions.