Central Bank Intervention to Control Currency Market

The head of the Central Bank announced that decisions have been made to stabilize the currency market, including the issuance of participation bonds with a 20% interest rate. In recent weeks, the prices of foreign currencies, especially the dollar, have fluctuated significantly, reaching nearly 5,000 tomans. Following the turmoil in the currency market and the failure of government promises, several currency dealers were arrested and some exchange offices were shut down on Wednesday. Now, Valiollah Seif, the head of the Central Bank, states that three actions will be taken by the banking network, including 'the issuance of deposit certificates with a 20% interest rate, the issuance of currency-based deposit certificates with interest rates of 4 and 4.5%, and the pre-sale plan of Bahar Azadi coins through selected branches of Bank Melli.' The 20% participation bonds aimed at making the rial more attractive come at a time when the Central Bank had previously instructed banks to lower interest rates, which was justified as a means to encourage domestic production. According to some experts, one reason for the surge in currency prices and the dollar is the increase in domestic demand. Fereydoun Khavand, a university professor and economist residing in Paris, told Radio Farda: 'The reality is that in a country like Iran, many variables affect the currency market, from inflation and bank interest rates to global oil prices and the country's foreign trade, along with geopolitical factors such as the future of the JCPOA and regional tensions, including the current situation at the borders of Israel and Syria, in which Iran is also involved.' Morteza Imani Rad, chairman of the board of the Bamdad Economic Studies Institute, considers the reduction of bank interest rates as a factor driving investments towards foreign currencies. According to this economic expert, the unrest in December this year also contributed to the increased demand for foreign currencies. Meanwhile, Majid Reza Hariri, vice president of the Iran-China Chamber of Commerce, pointed out that the government itself is a major supplier and consumer of currency in the country and proposed two possibilities: in a 'pessimistic' scenario, the government has raised the price of currency to cover its rial expenses and pay salaries. The second assumption, according to Hariri, is that the government has been unable to transfer all the currency earned from oil sales back into the country due to banking problems. The head of the Iran-China Chamber of Commerce estimates that the amount of currency remaining around the world and not in the possession of the Central Bank is about 22 to 23 billion dollars, while the first assumption that the government prefers to sell currency at a high price still exists. On the other hand, Farshad Heydari, the Central Bank's supervisory deputy, identified the repayment to depositors of unauthorized institutions by the government as one of the factors for the increase in currency prices. The deputy governor stated: 'In this matter of financial and credit institutions, 21,500 billion tomans of new money was injected into the economy, part of which went towards the currency and dollar market, increasing demand while supply was limited.' The price of currency in the Tehran market decreased by 61 tomans to 4,839 tomans on Thursday.