Stabilizing the exchange rate until February 11th
How Raeesi burned the nation’s assets
According to Iran Gate, about a month and a half has passed since Mohammad Reza Farzin was appointed as the head of the Central Bank. During this time, events have occurred that have given rise to serious criticisms of his performance.
One of these criticisms is the non-principled and non-expert performance of the Central Bank in the foreign exchange market. The exchange rate between the rial and the dollar in 2022 has increased by more than 75%, as the government started the year with a dollar rate of 26,000 tomans. However, currently, the dollar rate has broken the psychological barrier of 46,000 tomans, which experts see as a strong signal for the dollar to jump to the 50,000 tomans range.
In the complex and unusual economy of Iran, it is the responsibility of the Central Bank to determine the exchange rate. The exchange rate of the US dollar in the free market, which has become an important indicator for assessing the country’s economic situation and the value of the national currency, has faced increased attention from the public. Last night, Mohammad Reza Farzin provided explanations on the recent market developments and record-breaking performance in the foreign exchange market during an interview on the Islamic Republic of Iran Broadcasting. However, his explanations only added to the ambiguities and concerns of economists.
Capital burning in honor of the anniversary of the revolution
Mohammad Reza Farzin’s remarks on television two nights ago indicate widespread capital burning by the government and the central bank in the past 40 days. According to the statements of the central bank’s governor, the exchange rate has stabilized at around 45,000 tomans over the past month, relying on heavy currency injection. However, Farzin considers even this rate to be artificial and the result of a mysterious and imaginary manipulation. Nevertheless, it has been proven time and time again that the market mechanism will punish governments and speculators who go against the current.
In this regard, Farzin, like his predecessor who did not recognize the free market rate, took preemptive action and fled forward. In this television interview, he considered the US dollar exchange rate to be 42,000 tomans and labeled other prices as artificial and the result of enemy intervention. But what is the reason for the central bank governor’s recent statements?
Evidence shows that the central bank has been making efforts to prevent a surge in the dollar exchange rate from the 45,000 toman range in the free currency market until the 22nd of Bahman (February 11th), the anniversary of the revolution. Farzin, in his recent television conversation, confirmed the speculations about stabilizing the exchange rate by allocating a certain amount of currency in the Nima Mehr market, using extensive currency injection as leverage.
Deliberate currency injection for the purpose of intentionally lowering the price of the dollar
At first glance, it may seem that if the government tries to inject currency cheaper than the market’s actual price in order to reduce the exchange rate of the dollar, it has done something positive. However, economists have a different opinion on this idea and consider such actions by the government and the central bank as destructive and harmful. According to the beliefs of experts in the field of economics, if the government takes such action and artificially lowers the exchange rate below the market’s actual rate, it will be a step towards eroding people’s capital, although they may appear to be the winners in stabilizing the exchange rate.
Nevertheless, this approach has been present with varying intensity and weakness in different governments. However, evidence shows that in the past 40 days, the current government, using a seemingly justifiable lever, has achieved an unprecedented and alarming record in currency injection and eroding people’s capital, led by Mohammad Reza Farzin.
According to the statements of the head of the central bank, in the past 40 days, this institution has increased the supply of dollars by more than 50% above the daily market demand. Farzin announced in a special news interview with the Islamic Republic of Iran Broadcasting (IRIB) that more than $6.5 billion of currency has been allocated to the NIMA market.
It should be noted that the daily market demand averages around $120 million, according to statistics provided by Farzin. It can be concluded that the central bank has injected over $180 million into the market daily. As we know, this supply has been carried out at a much lower price than the actual exchange rate in the free market. Experts believe that this action by the central bank and the government aims to prevent the dollar from reaching 50,000 tomans until the forty-fourth anniversary of the Islamic Revolution.
Confirmation of capital burning in the foreign exchange market
Market analysts believe that the sharp increase in the price of the dollar on February 11, 2023, confirms the claim that the government intentionally burned national capital to only maintain appearances during the ten days of dawn in 2023. This increase of over 1,500 tomans in the dollar rate occurred in just one day, which led to the sudden and surprising appearance of the Central Bank Governor on the Islamic Republic television, attempting to justify the over 75% decline in the value of the rial over the past eleven months.
Perhaps the best description of the current state of Iran’s economy was written by Pedram Soltani, an active economist and Deputy Chairman of the Iranian Chamber of Commerce, in a tweet with the following content: ‘The sound of a bridge breaking, on which the locomotive of progress is slowly crawling, can be heard. But the locomotives are honking their horns to drown out the sound.’
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