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What is behind a rocketing dollar in Iran?

Commentary Materials 27 December 2016 19:44 (UTC +04:00)
In about a year, the US dollar has risen from a little over 30,000 rials in value in the Iranian market to more than 40,000 – something that has worried many in a country that is seeing a spurt of business activities in the wake of the removal of economic sanctions
What is behind a rocketing dollar in Iran?

Tehran, Iran, Dec. 27

Mehdi Sepahvand – Trend:

In about a year, the US dollar has risen from a little over 30,000 rials in value in the Iranian market to more than 40,000 – something that has worried many in a country that is seeing a spurt of business activities in the wake of the removal of economic sanctions.

There are numerous speculations as “what hands” stand behind the changes.

Some believe it is the rivals of President Hassan Rouhani who are pushing to destabilize his grounds in the upcoming elections of May 2017 where he will be running for a second term.

But looking at the country’s economic activities and afflictions, such a rise of the value of the dollar is not unexpected.

After Iran was freed from sanctions following the implementation of the Joint Comprehensive Plan of Action (JCPOA) in early 2016, the dollar has become more sought-after as businesses in the country are expanding their activities. Many companies are importing new material and equipment to improve their production, thus they need the dollar. In the first half of the current Iranian year (since March 20), currency circulation in Iran hit $44 billion.

Another important factor that has influenced the currency market is the high amount of goods smuggling into the country, which according to official reports, is equal to Iran’s legal trade in value. The Islamic Republic imported 18 million tons of goods, worth $24.05 billion during the first seven months of the current fiscal year. Iran's official non-oil trade balance over the first seven months of the current Iranian fiscal year remained positive for seventh straight month and stood at $606 million. Adding to this the illegal import, it is easy to figure out the amount of demand for dollar that the trade creates.

The inflow of dollars has also increased in the meantime, helping the dollar circulation. The main reason for that is the country’s oil export, which jumped from 1 million barrels per day (mbpd) in January to 2.5 mbpd now.

The non-oil sector also boosted its contribution to the dollar inflow. The value of exports of Iran’s non-oil sector surpassed $31 billion over the first nine months of the current fiscal year. The figure indicated a 9.5-percent surge compared to the same period of the previous Iranian calendar year.

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