The Central Bank of Iran is planning to introduce a second official currency exchange rate for imports, Mehr news agency has recently reported. The new measure, which should be implemented within the next few weeks, has been approved by the government.
But why is this change necessary? Well, the new currency will aim to bring back stability to the volatile Iranian market. Earlier this month, the Iran rial plunged significantly against the US dollar in open market trade on Monday.
On October 4, Currencies Direct revealed that the rial was trading at 34,200 for every $1, which was down from about 29,720 on September 30. It was even trading at 24,600 during the previous week.
The currency's freefall has intensified the burdens on Iran's economy, as it is currently struggling with tough sanctions targeting oil exports and measures that are blocking it from key international banking networks. These sanctions were imposed upon Iran due to the country's continued development of its nuclear programme.
But many accept that Western sanctions are not the only reason for the rial's sharp decline. Some have begun to blame governmental policies, such as fuelling inflation by increasing money supply while also artificially holding down inflation rates. This has encouraged many native Iranians to exchange their rials for foreign currency, as it is more likely to hold its value.
This economic unrest has led to riots in Tehran's main bazaar among the disillusioned merchant classes. The decreasing value of the rial and the rising prices has not only made staples, such as lamb and chicken, out of the reach of many low-income Iranians, but imports are also diminishing due to the poor exchange rates.
So while it may be difficult to tell at the moment, Currencies Direct will be paying attention to the developments in Iran to see whether the second currency exchange rate will benefit the ailing country.
UK-based Currencies Direct is one of Europe's leading non-bank providers of currency exchange payment services.
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