Voices from the Arab press: Iran and the temptations of dollarization
Author | THE MEDIA LINE |
Published date | 22 April 2023 |
Publication title | Jerusalem Post, The: Web Edition Articles (Israel) |
For more stories from The Media Line go to themedialine.org
The question of whether Iran should transition to the US dollar as a de facto second currency has been gaining traction among the ruling elite in Tehran. With the national currency, the Roman, continuing its fifth year of a downward trajectory, Iran has just ended its fourth year of negative economic growth and is entering its fifth year with no clear prospects of a turnaround.
Mohammad Reza Farzin, the newly appointed governor of the Central Bank of Iran, attributes this poor performance to three factors: a liquidity tidal wave that has led to an inflation rate of nearly 50% annually; a lack of discipline within a technically bankrupt banking sector; and widespread fears about the future, which have created an insatiable demand for the US dollar.
The Central Bank of Iran profits 15% on dollars sold to semiprivate banks. Given these circumstances, the debate over whether Iran should switch to the US dollar as a de facto second currency has become increasingly urgent. This decision will have far-reaching implications for the country's economic and political future.
In the last year, Iranians converted much of their savings into US dollars due to the devaluation of their national currency. According to Farzin, the Central Bank is expected to provide $65 billion to the government to cover its expenditures over the next 11 months. This has resulted in private Iranian investors investing or buying real estate in countries such as Turkey, Georgia, Oman, Dubai, and Kazakhstan.
However, it is not known how much of this money will come from printing more local currency and selling US dollars to private Iranian investors. The government is the primary source of US dollars, which it obtains from oil exports, and it benefits from the depreciation of the national currency. This has created an imbalance in the government's economic strategy, as it needs to print money to make up for the lack of growth and tame inflation to encourage investment and productivity.
This currency devaluation can boost domestic production, but it can also lead to increased exports, thus exacerbating supply problems at the national level. The worsening situation in Iran is compounded by government subsidies that offer private companies the opportunity to re-export gasoline and petrochemical products at subsidized prices to Turkey, Armenia, and Iraq.
Official reports indicate that despite negative economic growth, gasoline consumption in Iran is increasing annually at a rate of 9%. This is due to the semiofficial export of gasoline to neighboring...
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