Note: The Policies of the Central Bank of Iran and Capital Flight

Based on the new conditions for currency sales in the market, currency buyers must carry documents such as their original passport and national ID, the original exit tax receipt, and their ticket and visa when purchasing currency. According to the new conditions, for countries that do not require a visa, $500 is sold per person, and for countries that require a visa, $1,000 is sold. In recent months, the Central Bank has attempted to disrupt currency market transactions in various ways. The Central Bank's goal with these actions is to reduce demand for currency and thus achieve short-term stability in the currency market to prevent fluctuations and increases in currency prices. At the same time, the Central Bank is trying to prevent buying, selling, and speculation in the currency market by employing law enforcement, which is a way of concealing the currency market crisis. This is because the Central Bank and the government have not succeeded in achieving sustainable stability in the currency market and are trying to create a temporary and somewhat unstable balance in the currency market with new policies to prevent the depreciation of the Central Bank's credibility and the ruling establishment. It is no secret that the inflation rate in Iran is a fundamental variable in the depreciation of the rial against international currencies. The inflation rate, in turn, is influenced by the government budget deficit rate, economic efficiency, and other macroeconomic variables. Budget deficits and economic inefficiency are natural in a rentier economy framework. Why has the demand for currency surged in recent months? Part of the increase in demand is normal and usual, while part of it is speculative and carried out by brokers. The environment for brokerage in the currency market is the multi-rate nature of this market and the application of discriminatory rates in this market. If the government facilitates a single exchange rate and currency float, speculation in this market will be severely limited, and there will be no reason for brokers and floating capital to rush into this market. In addition to the factors mentioned, two other reasons have also influenced the increase in currency demand. One is the decrease in deposit interest rates, which has turned stagnant deposits into floating liquidity that enters the currency and housing markets. With lower interest rates and reduced credibility of the Iranian banking system, some prefer to convert their capital into dollars. Furthermore, according to reports from some international economic news agencies, capital flight from Iran has intensified in recent months. For example, according to the economic news site (Tranio), following the anti-government protests in Iran that occurred in January, capital flight from Iran has intensified. The destination of this capital, according to this news source, is the housing and real estate markets in Britain, Canada, and Turkey. The currency market is very sensitive and is influenced by the political and economic variables of each country. Given that the macroeconomic variables of the country have not undergone fundamental and significant changes in recent months, political reasons—namely, internal and external tensions—should explain the severe fluctuations in the currency market in recent months. The most important reason in this regard is the unrest and internal tensions of January this year, which have called the political stability of the country into question. However, alongside this internal tension, the escalation of disputes between Iranian government leaders and the White House has also disrupted the post-JCPOA calm and negated some of its positive outcomes. The combination of internal and external tensions explains the capital flight from Iran. The short-term policies of the Central Bank cannot solve long-term problems. The Central Bank's actions regarding currency supply restrictions and market control through law enforcement are short-term suppression of the currency market and aim to prevent the discrediting of the rial and the government, which is a political goal. Implementing such policies will, of course, incur significant economic costs, but this does not mean sustainable balance in the currency market based on improvements in fundamental macroeconomic variables, such as reducing the inflation rate compared to the international average, increasing currency inflow, or reducing actual demand for it. Therefore, the currency market will inevitably become volatile again sooner or later, as past experiences confirm. Long-term and sustainable balance in Iran's currency market is conditional on structural economic reforms that are beyond the scope of government management and are political in nature; for example, internal and international tensions in Iran must be reduced, or Iran's economy must open up to the international economy, and the government's budget must be freed from rent-seeking. Such decisions require a transformation of the structure of Iran's economy and the role and authority of the Supreme Leader and the institutions affiliated with it, whether military or religious.