The Iranian Riyal has dropped today to its lowest levels in history to 24 thousand riyals for a dollar. This reduction comes in conjunction with Canada’s decision to cut ties with Iran and the talks between EU states to impose new embargoes on trade with Iran.
Amidst this severe reduction in the value of the local currency, Tehran is pushed to adopt new policies including an exchange-rate fixing system that goes in line with the goal behind buying foreign currencies.
The Iranian economy is currently suffering from a severe depression due to the repercussions of international sanctions. Crude oil exports have dropped to their lowest levels for the last twenty years in July. The market currency has fallen to 22 thousand riyals for a dollar although the official rate is set at 1 riyals for a dollar amidst a concerning increase of inflation rates.
According to an analysis held by STATFOR, Tehran is trying to address this challenge by setting a multi-leveled system for riyal exchange rate in order to maintain the hard currency in addition to restructuring governmental subsidies and controlling prices.
However these procedures might aggravate the existing economic problems in the country and Tehran might have to rely on its security apparatus to impose its unpopular economic policies when sanctions against it increase.
In this context, STRATFOR’s analyses compares Iran to Venezuela that has adopted a similar system in terms of multi-leveled exchange rates based on basic and no-basic imported goods. But Venezuela has faced difficulties in guaranteeing the arrival of imported goods to the consumer at subsidized prices. Moreover, traders took advantage of the subsidies system to increase their gains by selling goods at the market price. This system has also failed in eradicating inflation.
STRATFOR noted that the attempt of the Iranian government to control prices by imposing fines on traders who disrespect official quotations might cause a lack in basic goods in the Iranian market which might lead in turn to a state of social instability.