Can the Iranian Government Remove the Dollar from Trade Transactions?

Recently, Eshaq Jahangiri, the First Vice President and Head of the Resistance Economy Command Headquarters, stated during his speech at the 21st National Export Day: "At this stage, we insist on reaching an agreement with target countries to conduct our trade transactions in national currencies." Just a few days after these remarks, despite a new monetary agreement between Iran and Turkey that was supposed to eliminate the dollar from the trade cycle of the two countries, Seyyed Jalal Ebrahimi, Secretary-General of the Joint Chamber of Commerce of Iran and Turkey, stated that the dollar has not been removed from their transactions. Jahangiri's comments are not new and fall within the framework of what is called "Resistance Economy." A while ago, Ali Khamenei, the Supreme Leader of the Islamic Republic, claimed during a meeting with participants of a nationwide seminar of the Revolutionary Guards that: "If officials and the people can truly realize a resistance economy and free the country from the financial and monetary magic of the enemy." Even before these remarks, Mahmoud Ahmadinejad had taken an extreme stance, stating at the end of the OPEC summit in Riyadh, the capital of Saudi Arabia, that the dollar has no economic value and that oil-buying countries exchange worthless pieces of paper (the US dollar) for oil. At that time, the Central Bank of Iran, for the umpteenth time since the fall of the previous regime, proposed a plan to replace other currencies instead of the dollar, which, like past plans, was forgotten. What remains is the cost of such slogans that have so far plagued the Iranian economy. The monetary-trade agreement between Iran and Turkey was mainly based on rhetorical actions. This slogan was a political stance by the Turkish government against recent actions by the Trump administration and simultaneously an "ideological" move by Iran. Before the Trump administration came to power, relations between Iran and Turkey over regional issues such as Syria and Saudi Arabia had become very cold and tense. However, with the change in the US government's approach to the JCPOA and subsequent verbal attacks by Trump on the Iranian regime, as well as Washington's policy of supporting Syrian Kurds in the fight against ISIS, both the Iranian and Turkish governments feel the need for a union—albeit political and propagandistic—against Washington. Therefore, as soon as Washington's pressure on Turkey and Iran decreases, their disputes over regional issues such as the survival of Bashar al-Assad in power, which had previously strained their relations, will resurface. However, regardless of the political closeness or distance between the Iranian and Turkish regimes, the economies of the two countries will follow their own paths. Thus, if the monetary-trade agreement between Iran and Turkey does not have a scientific and practical logic, it will not be implemented and will fade into memory. Moving beyond the realm of theoretical debate, the fundamental question should be posed to Iranian and Turkish merchants and investors. In a situation where both currencies, the rial and the lira, are highly volatile and at their lowest value compared to a basket of reputable international currencies, will Iranian and Turkish merchants and investors prefer the rial and lira over using the dollar? Because the condition for the practical realization of any monetary-trade agreement is that it must genuinely benefit and profit the actors in the trade and investment arena. Otherwise, that agreement will be neglected and set aside. Of course, this action by the Iranian regime—regarding the slogan of eliminating the dollar from economic transactions—has a long history, and despite its detrimental nature, the Iranian government is unwilling to abandon it for rhetorical, political, and domestic consumption reasons. After the fall of the previous regime, the current regime, alongside rhetorical approaches, attempted to eliminate the dollar from its trade transactions through the Central Bank's policies. The Central Bank and other relevant institutions have repeatedly tried to remove this so-called worthless green paper from the trade cycle, but in practice, the Iranian economy has become more dollarized. Currently, merchants and everyday people also pay attention to the dollar price in their daily transactions, let alone merchants and investors who operate globally. Such a situation was not common before and is, of course, a product of the devaluation of the rial as a national currency from both psychological and economic perspectives. This is why the dollar's foothold as a means of measuring, exchanging, and saving has become more entrenched in the Iranian economy. Now, Iranian merchants and households, to preserve the value of their capital, abandon the national currency, the rial, and buy the dollar at high prices to save it. They know that their national currency has no future given the inflation and internal and external political tensions in Iran. In the realm of reality versus the realm of slogans, money—and here the dollar—has various functions such as a means of measuring the value of goods and services, a means of storing financial value, and finally, a medium of exchange. Despite all criticisms, the dollar remains the most important currency in the world; the bulk of essential commodities like oil and precious metals, as well as global stocks, are measured in it, and the majority of global investment and trade is conducted with it. So how can it be removed from trade transactions? Especially since Iranian and Turkish merchants ultimately need to convert the lira and rial, which are also very unstable, into dollars to access the global market. Furthermore, a significant portion of Iran's foreign exchange revenues—derived from oil exports—is evaluated in dollars, stored in dollars, and converted into goods and services with those dollars, making it impossible to free itself from the dollar, at least in the short term. Which currency will Iranian and Turkish merchants choose? The practical economic logic—which is based on higher profit and lower risk—does not support this. Because Iranian and Turkish merchants ultimately must convert their currencies into dollars or possibly euros to meet their international needs. Naturally, such an action would mean a loss for these merchants or investors. Therefore, they prefer to conduct their transactions from the outset in dollars and not become trapped by the fluctuations of the lira and rial. It is natural that capital is concerned about risk and loss and will ultimately choose a more stable currency that has greater acceptance and value for exchange and investment.