Hamas Missile Strike on the Short Wall of the Rial
The Al-Aqsa Storm operation has affected the living conditions of Iranian citizens more than it has damaged Israel and its security and economic infrastructure. The dollar rate has returned to the 50,000-toman range, and evidence suggests another imminent jump in currency prices.
When Hamas’s Al-Qassam Brigades fired the first rockets towards the occupied territories, the explosion occurred not in Israeli soil but on Mir-Damad Street in Tehran, at the Central Bank of Iran. The value of the rial increased by about 10% in the first six hours of the operation, and the wall that Farzin and the Central Bank had built against the dollar suddenly collapsed.
Although in the following days, with the positions taken by the leader of the Islamic Republic, this surge was somewhat compensated, and the dollar experienced a 4 to 5 percent retreat, the situation progressed such that the price stabilized in the 50,000-toman range. Now experts believe that the equations in the currency market are written in such a way that in the winter of 2023, we will witness a significant increase in the dollar rate that will affect all markets.
Iran Gate had previously warned in September of such an event, cautioning that Farzin and his team’s defensive barrier against the rise in the dollar price was artificial and weak and would soon collapse. However, this report examines the currency rate more closely in the coming days and weeks.
Price Explosion on Mir-Damad Street
To better understand the state of the rial’s value in the days and weeks following the Gaza war, one can refer to the chart below. As seen in the image, the dollar rate at the beginning of October 2023 spent until mid-month stable in the 49,000-toman price range, but subsequently, with the start of the Gaza war on October 7, 2023, we suddenly witness a price increase and breaking the 50,000-toman barrier for the dollar price. Therefore, it can be clearly stated that the currency rate is entirely influenced by regional developments.
The Wall that Collapsed
Since the day Mohammad Reza Farzin took the helm of the Central Bank, there have been extensive efforts to suppress the currency rate. This policy has caused the dollar rate to hover between 48,000 and 50,000 tomans over the past eight months. However, experts believe the Gaza war has caused this price barrier in the currency market to break. As a result, many financial market activists believe that now that this barrier has been broken, the dollar can move towards its real price in the free market.
What is the Real Dollar Price?
There is a specific formula for calculating the real dollar rate, which is also used by market activists. To calculate this rate, one can multiply the 49,000-toman price by Iran’s annual inflation rate in 2022 minus the US inflation rate for the same period. The figure obtained represents the decrease in the value of Iranian money over the next year. Thus, for 2023, considering Iran and US inflation rates, it is expected that by the end of the current year, each US dollar will be worth between 70,000 to 75,000 tomans.
However, this point does not mean the definite dollar price will be in the 70,000-toman range by the end of the current year. In fact, it implies that if the Central Bank cannot create the same defensive barrier again, the price should reach this range. This is where it is said that the Gaza war has fundamentally broken Farzin’s defensive barrier against the currency rate. Therefore, it is expected that the likelihood of the dollar price rising to the 70,000 to 75,000-toman range by the end of the current year is much higher than a month ago and before the start of the Gaza war.
Of course, over the past month, there have been periods where we have witnessed a decrease in the currency rate, including speeches by Ayatollah Khamenei and Sayyed Hassan Nasrallah, which are clearly visible in the above chart. As a result, some government-supporting experts claim that with the calming of the war’s flames, the dollar price will return below 50,000 tomans. However, this is where they are referred back to the same currency rate calculation formula, and the Central Bank’s efforts to control the price are deemed unsustainable. Therefore, it is expected that the price will once again rise to the 60,000-toman range and then to the 70,000 to 75,000-toman range.
