Collapse of National Currency Value; Iran After Venezuela
Hamid Baeidinejad, Iran’s ambassador to Britain, has stated that Iran has performed better than many other countries in the world in preserving the value of its national currency over the past year. A fact-check has examined the accuracy and inaccuracy of this claim.
Hamid Baeidinejad, Iran’s ambassador to Britain, has stated that Iran has performed better than many other countries in the world in preserving the value of its national currency over the past year. A fact-check has examined the accuracy and inaccuracy of this claim.
Iran’s ambassador to Britain, by retweeting a post from The Spectator Index, has claimed: “In the list of countries facing the most problems in preserving the value of their national currency against the dollar, Iran, despite pressures and economic sanctions, has performed better than Venezuela, Argentina, Turkey, Pakistan, Brazil, Russia, Sri Lanka, Kazakhstan, South Africa, and Sweden.”
He further added, in reference to reactions to The Spectator Index‘s tweet, that “they say the specialized institution made a mistake because it set the calculation basis at 4,200 tomans per dollar. This is certainly not the case. Because everyone knows that in Iran, the free market dollar rate is, for example, 11,000 tomans, but at the same time there is also an allocation of 4,200 tomans per dollar for essential goods. Therefore, the calculation basis is to consider all existing factors.”
در فهرست کشورهایی که در حفظ ارزش پول ملی در برابر دلار با بیشترین مشکلات روبرو بوده اند، ایران با وجود فشارها و تحریم اقتصادی عملکرد بهتری از ونزوئلا، آرژانتین، ترکیه، پاکستان، برزیل، روسیه، سری لانکا، قراقستان، آفریقای جنوبی و سوئد داشته است. https://t.co/HJwr90p9cb
— Hamid Baeidinejad (@baeidinejad) January 23, 2019
Baeidinejad also responded to a reaction from Alireza Solvati—an economic affairs expert—who had written “in no way of calculation is the 4,200 toman dollar either real or useful,” saying: “In a precise assessment, simply basing on one exchange rate will not be scientific, but rather an average rate from a basket of different exchange rates should be used as the basis, taking into account the relative value of each rate in the currency consumption basket.”
How much has the dollar price changed in Iran’s official market?
14 percent, which is nothing but the result of dividing the official exchange rate this past winter and last winter. According to data from Iran’s Central Bank website, the average official exchange rate in December 2017 was approximately 3,680 tomans, and since last summer the official rate has remained fixed at 4,200 tomans.
Dividing these two numbers shows that the official exchange rate has increased by 14 percent over the past year. However, neither is the 4,200 toman dollar the only currency in circulation in Iran, nor are all official transactions conducted at this rate.
How much has the dollar price increased in the unofficial market?
Over the past year, there have been at least two exchange rates in Iran. According to Central Bank statistics, the average exchange rate in November 2017 was 4,306 tomans.
Based on information released by the Central Bank under the title “Weighted Average SANA,” the average buying and selling price of foreign exchange in the month ending February 23, 2019 was 10,940 tomans. On this basis, the increase in the dollar price between November 2017 and November 2018 was more than 2.5 times.
Estimating the share of the 4,200 toman dollar in Iran’s total foreign exchange transactions
According to Iran Customs Administration reports, the total volume of legal imports in the first nine months of 2018 was approximately 32.6 billion dollars. Meanwhile, a report by the Parliamentary Research Center titled “Assessment of the Results of Currency Allocation at Preferential Rates” shows that during this period 11.1 billion dollars of the nine-month imports were allocated to essential goods, which were imported at the 4,200 toman exchange rate.
In fact, one-third of the country’s official imports were imported at the government rate of 4,200 tomans per dollar, and the rest at other rates. By this calculation, the share of essential goods is only one-third of the country’s total imports.
Meanwhile, the country’s foreign exchange needs are not limited to legal imports. Besides official importers, the dollar has other demanders in Iran. They are forced to meet their required dollars from the free and unofficial market.
But what is the country’s total foreign exchange need? There is no precise and reliable information on this, but it has been said that the country’s annual foreign exchange need is 70 billion dollars. If we use this figure as the basis, the nine-month foreign exchange need is approximately 52 billion dollars, of which 32 billion has been spent on legal imports and the rest has been allocated to illegal imports or other purposes.
By this calculation, it can be roughly said that the share of essential goods imports conducted at the 4,200 toman dollar rate is approximately one-fifth of the country’s foreign exchange needs. 40 percent is the share of legal imports of non-essential goods, and the remaining 40 percent is obtained from the free market for informal imports, foreign travel, or individuals’ foreign exchange savings.
Estimating the weighted increase in exchange rates
The results of this investigation show that over the past year, the official dollar rate, with a weight of 20 percent of foreign exchange transactions, has increased by approximately 14 percent. On the other hand, the free market dollar price, with a weight of 80 percent over the past year, has increased by more than 1.5 times.
By this calculation, even if the weighted average is used as the basis for calculation, the dollar exchange rate in Iran between December 2017 and December 2018 is estimated at more than 122 percent. Considering this figure in The Spectator Index‘s ranking, Iran is not the eleventh, but the second country after Venezuela that has experienced the greatest depreciation of its national currency over the past year.
Source: DW
