Since the election of President-elect Hassan Rouhani, the Iranian currency has gained considerably with respect to the dollar in Iran’s open, unregulated market. Many had taken this increase in value as a sign of renewed confidence by Iranians in Rouhani’s promise to improve relations with the West. Under President Mahmoud Ahmadinejad, the value of the toman had decreased dramatically, causing many Iranians to turn to dollars as a form of investment.
However, according to two articles by Reformist papers Shargh and Bahar, the strengthening of the toman may indeed be the result of actions taken by Ahmadinejad’s administration to fulfill a promise to bring down the toman value to below 3,000 with respect to the dollar. This decision by the current administration, which would be only a temporary solution, may cause serious economic challenges for the Rouhani administration. A summary of the two articles was also carried by Persian-language Radio Farda.
According to Shargh, who interviewed economist Saeed Leilaz, the drop in the exchange rate was “quasipolitical.” The title of the article was “The Mystery of Cheap Currency at the End of Ahmadinejad’s Administration.” Shargh continued, “The administration is trying to turn over the government to Rouhani with the 2,400 toman value that they forecast in their budget.”
According to recent statements by government officials such as Mahmoud Bahmani, the head of Iran’s Central Bank, “All the necessary measures will be taken to decrease the exchange rate and to continue the process of this decline.”
Shargh criticized this sudden shift in policy. “The statements by Bahmani confirms the political nature of the sudden price in the currency,” they wrote. “Not only was Bahmani not able to control the fluctuations in the market the last two years, but he was also not able to bring the price of the dollar down one bit.”
Leilaz told Shargh that “In that last two years the administration, by raising the dollar on the open market, was able to partially offset the budget deficit.” However, according to Leilaz, by injecting petrodollars into the market, the administration is with one step “paying off debts to various contractors and companies and in the second step, bringing down the toman to the 2,400 they predicted in the budget.”
These measures by the Ahmadinejad administration could bring about serious challenges for Rouhani when he takes office in August, according to Leilaz. “The current administration wants to transfer the deficit to the incoming administration and as a result, the new administration will not have a choice but to borrow from the Central Bank and print more money,” Leilaz said. “And everyone knows that an increase in liquidity and inflation and unemployment are consequences of borrowing from the Central Bank.”
Dr. Abbas Hashi, auditor at the Tehran Stock Exchange, struck a similar warning in Bahar in an article titled “Warning About the Turmoil in the Currency Market.” He said, “Underneath this hopeful outlook about Iran’s economic future … some don’t see the decline of the currency (which has not affected other markets, or at least did not influence the market for consumer goods) as being genuine.”
“At the moment, the dollar has become an index of evaluation for activities by government officials,” Hashi said. “Our officials look at the rate when the administration was handed to them and the rate when they handed the administration over.”
“This view is worrisome,” Hashi warned. “It creates distortions. For instance, assume the next president comes in, they’ve dropped the toman so that they can turn over the administration with a toman under 3,000. And two months after the new administration is settled, again the heat is turned up and everyone will say that the new administration couldn’t calm the exchange market.”
Bahar also quoted former parliament member Hady Hagshenas as saying that “If the rate of the toman reaches below 3,000, that means there are non-economic factors in the exchange rate.”