Iranian Rial - Value

Value

See also: Central Bank of Iran, Seigniorage, and Customs Administration in Iran

In 1932, the exchange rate with the British pound was 1 pound = 59.75 rial. This changed to 80.25 in 1936, 64.350 in 1939, 68.8 in 1940, 141 in 1941 and 129 in 1942. In 1945, Iran switched to the U.S. dollar as the peg for its currency, with 1 dollar = 32.25 rial. The rate was changed to 1 dollar = 75.75 rial in 1957. Iran did not follow the dollar's devaluation in 1973, leading to a new peg of 1 dollar = 68.725 rial. The peg to the U.S. dollar was dropped in 1975.

In 1979, 1 rial equaled $0.0141. The value of Iran's currency declined precipitously after the Islamic revolution because of capital flight from the country. Studies estimate that the flight of capital from Iran shortly before and after the revolution is in the range of $30 to $40 billion. Whereas on 15 March 1978, 71.46 rials equaled one U.S. dollar, in July 1999, 9430 rials amounted to one dollar.

Injecting sudden foreign exchange revenues in the economic system forms the phenomenon of "Dutch disease" in a country. There are two main consequences for a country with Dutch disease: loss of price competitiveness in its production goods, and hence the exports of those goods; and an increase in imports. Both cases are clearly visible in Iran.

Although described as an (interbank) "market rate", the value of the Iranian rial is tightly controlled by the central bank. The state ownership of oil export earnings and its large reserves, supervision of letters of credit, together with current - and capital outflow account - outflows allows management of demand. The central bank has allowed the rial to weaken in nominal terms (4.6% on average in 2009) in order to support the competitiveness of non-oil exports.

There is an active black market in foreign exchange, but the development of the TSE rate and the ready availability of foreign exchange over 2000 narrowed the differential to as little as IR100 in mid-2000. However the spread increased again in September 2010 because channels for transferring foreign currency to and from Iran are blocked because of international sanctions.

Monetary policy is facilitated by a network of 50 Iranian-run forex dealers in Iran, the Middle-East and Europe. According to the WSJ and dealers, the Iranian government is selling $250 million daily to keep the Iranian rial exchange rate against the US dollar between 9,700 and 9,900 (2009). sometimes the authorities choose to weaken the national currency intentionally by withholding the supply of hard currency to earn more rial-denominated income, usually at times when the government faces a budget deficit.

Exchange rates: rials per US dollar – 10,800 (2011 est.), 10,308 (2010), 9,864 (2009), 9,143 (2008), 9,408 (2007), 9,227 (2006); 8,964 (2005); 8,885 (2004); 8,193 (2003)

Pre-unification, rials per US dollar:

Market: 8,200 (2002); 8,050 (2001); 8,350 (2000)

Preferred: 6,906 (2002); 1,753 (2001); 1,764 (2000)

The widening of the gap between official and unofficial exchange rates in 2011 stands at over 20% (as of November 2011). This shows the correlation between the value of foreign currencies and the domestic inflationary environment.

The unofficial rial vs. US dollar rate underwent severe fluctuations in January 2012 (losing 50% of its value in a few days, following new international sanctions against the CBI), eventually settling at 17,000 rials at the end of the period. This has the effect of boosting the competitiveness of Iran's domestic industries abroad. CBI announced that it would be fixing the official rate of the rial against the Dollar at 12,260 rials from 28th January 2012 and seek to meet all demand for foreign currency through banks. One day earlier, President Ahmadinejad took the decision to liberalize the mechanism by which bank interest rates are set, granting banks the authority to raise interest rates to up to 21%.

On September 25, 2012, the Iranian rial fell to a new low, trading at 26,500 to the US dollar. The drop followed the government's launch of a foreign exchange centre a day before, that would provide importers of some basic goods with foreign exchanges, at a rate about 2% cheaper than the open market rate on a given day. The announced rate at the centre on September 24, 2012 was 23,620 rials to USD. By early October 2012, Rial had further fell in value to about 38,500 Rials per USD.