The beginning of the collapse of the Iranian currency foreshadows the end of the political system in Tehran

The beginning of the collapse of the Iranian currency foreshadows the end of the political system in Tehran

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The Iranian currency has fallen against the dollar in less than a year at the edge of 5,000 Tumans , as the dollar rose 400 Tumans to reach 4985 on 13 February 2018, coinciding with the re-election of President Hassan Rowhani for a second term.
The official Iranian agency said that the reason for the decline, due to lack of supply and raising the price of currency in exchange offices, while experts and specialists believe that the economic and political reasons for this decline are:
• Protests in Iran in late December 2017, due to high prices and unemployment, which began with socio-economic headlines and raised slogans against the ruling establishment, and the demonstrations have its internal political motives associated with the reformist-fundamentalist struggle, so its exist from the control and transformation into space to oppose the regime turn it to the confrontation between protesters and the authorities, leading to insecurity and low confidence in the Iranian market.
• The threat of US President Donald Trump to cancel the nuclear agreement created fears in the Iranian street, which affected the formulation of the Iranian economic scene, and the entry of Iranians to the stage of questioning, as the first manifestations of public concern are the increasing demand for the dollar and withdraw deposits for fear of the collapse of the currency led to the bankruptcy of financial institutions that could not meet the applications of depositors.
Experts and specialists believe that the crisis is linked exclusively to the consequences of the economic sanctions that remain on Iran and the lack of foreign investment flowing into Iran.
Limiting the causes of what has happened to economic sanctions alone will show an incomplete picture of Iran’s complex crisis and Iranian economic and political scenes , so that analytical conclusions can not produce clear results about the collapse .
Because the economy and politics are two sides of a single coin, the crisis must have repercussions beyond mere exchange rates and collapse, and go beyond Iranian financial policies that contributed to the emergence of the crisis.
The apparent part of the crisis is economic par excellence where the collapse of the exchange rate reflects a clear deterioration in the state of the Iranian economy, because the successive collapse of the exchange rate is reflected heavily on the prices of real estate assets and living standards of Iranians, especially retirees and those of fixed income.
The newspaper Arman described what is happening in the Iranian market as an attempt to “coup” against the government through the currency. “If the effect of the currency is not directly on people’s lives, the psychological impact can be difficult for society because the fluctuations of the currency and gold market cause the deterioration of Psychological calm for citizens.
The newspaper accused the “defeated in the world of politics and economic groups” working hideously facing the government through the “economy” (currency and gold market) to become a political weapon against the government.
Economic and political experts stressed that the increase in the demand to buy the dollar despite the increase in its value due to lack of confidence in the Iranian regime, because of its expansionist and hostile policy in the region, which led to the exposure of their country to international sanctions, in addition to the flight of foreign capital from Iran and the rise of inflation which contributed to the increase the price of basic commodities and goods largely.
The Iranian economic analyst Faridoon Khawand criticized the decision to determine the foreign exchange rate of his country, saying that the central bank will not be able to control much the price of green currency, pointing out that there are several factors that control the foreign exchange market in Iran, including inflation and foreign trade, especially in light of fluctuations of World oil markets.

In the same context, the Iranian government tightened its grip to stop the devaluation of its local currency against the dollar, which fell to record levels as the central bank of Iran set a maximum limit for Iranians holding foreign exchange outside banks at 10,000 Euros.

The central bank gave a date for consumers until the end of April to sell any surplus or deposit it in banks, Tasnim News Agency reported.
The official website of the Central Bank of Iran published new and official exchange rates for the pound sterling at 59330 riyals and the euro at 51709 riyals.
Iranian Vice President Yitzhak Jahangiri called the crisis “aggressive” attempts against Iran from the opponents especially the United States after the nuclear deal, stressing that Trump is trying to disrupt the economic situation in order to prevent investment in Iran.

Jahangiri pointed to Iran’s agreements with other countries to attract foreign investments of more than 30 billion dollars in the form of finance, adding that a large volume of foreign investment is now moving into the country. In such circumstances, such changes in the foreign exchange rate appear to be completely abnormal and that there are uneconomic, unjustified and unexpected factors that are influential in this area. In such circumstances, we can not allow a disturbance in the country’s economic climate.
Jahangiri said that the price that was set at the meeting for the price of the dollar is 4200 Toman, it will be adopted in transactions and the government does not recognize at any other price and will be held accountable for dealing at a higher price, as the security and judicial authorities are authorized to address it.
Iran has combined its official exchange rate of its currency and its price on the open market a few days ago, and announced that the price of the dollar will be 42 thousand riyals in all markets and all business activities.
The expectations of the Iranian market observers that the economy of Tehran will see a collapse and specifically in the banking sector, in the coming period, considering that the foreign currency crisis is likely to expose the Iranian regime to the scenario of Venezuela’s acute crisis, which is experiencing a deepening economic crisis or the bankruptcy of official financial institutions in the country.
The Iranian government’s policy caused to impose economic sanctions and reducing the price of the Iranian currency, especially the process of withholding Iran from the international exchange process (SWIFT), made its international exchanges very difficult and therefore , it is the most important financial penalty to be directed to Iran. Anyone who has visited Tehran in recent years has difficulty using electronic payment cards in Iranian hotels and shops to buy goods and commodities , forcing tourists to carry large amounts of money in their travel and tour in Iran with a clear effects of economic sanctions while the the collapse of exchange rates can not be justified solely by the fact that these sanctions are only doing its work, but the policies of Iranian President Hassan Rowhani must also be taken into consideration and put in front of its responsibilities .
Neoliberal policies of Hassan Rohani’s government have also contributed to this outcome, and the clash between policies of bias for the vulnerable as a political slogan and policies of bias against them as economic practice.
Therefore, the Iranian president is drawing attention now that he is under great pressure because of his responsibility for the current economic crisis. It is obvious that the wings of the government in Iran are trying to make him pay the price of the economic crisis with the remaining political balance in order to prevent the crisis from spreading to the entire regime.
Given Iran’s historical background, it is likely to be re-aligned within the regime on the basis of another formula that can resolve the economic crisis through its influence with active actors in Iran’s economic equation, which requires relatively little time and quiet not available because of US President Donald Trump’s statements and his pressures.
And economic failures will continue to do its work inside Iran for a foreseeable period, which puts pressure on Iran’s decision maker in the political and regional files. However, economic and regional pressures do not seem to lead to an Iranian handover of regional files. The IRB has been holding about $ 70 billion in reserves to keep it from collapsing in the short term, and Iran still has a good deal of paperwork. The ball is still on the pitch and the final result has yet to be announced.
The crisis has had repercussions on the Iranian street. The sharp decline in the value of the Toman necessitated the interference of the security forces, the raids on the exchange market in central Tehran and the arrest of dozens of accused of manipulating the money market.
The Iranian government resorted to increasing the tax rate for travelers outside the republic. After the travel tax being of 70 tomans paid at the time of leaving Iran for the first time, it became 220 tomans, the traveler for the second time has to pay 320 tomans, and the third time and on reached 440 tomans , and the Iranian tomans reached 490 in the currency market and 420 in banks .

Observers believe that the only hope for the Iranian economy to overcome this crisis is the continued relative stability of oil prices, but the possibility of continuing social unrest and the intensification of sanctions could easily eliminate the economic benefits of stable oil prices.

Economic Studies Unit
Rawabet Center for Research and Strategic Studies