Single Exchange Rate Dependent on Lifting Sanctions

Radio Farda - Valiollah Seif, the head of Iran's Central Bank, said on Tuesday, March 10, that the groundwork for implementing a single exchange rate in the coming Persian year has been prepared. Fahimeh Khodr Heidari asked Fereydoun Khavand whether the Iranian economy has the necessary conditions to move towards a single exchange rate again. Fereydoun Khavand stated that currently, there are two exchange rates in Iran: one is the official exchange rate of 2,793 tomans per dollar accepted by the Central Bank, and the second is the free market rate, which trades between 3,380 to 4,000 tomans. There is also another rate used for budgeting, which is set at 2,650 tomans for the current Persian year. If we disregard the budget rate, Iran's exchange system is dual - official and free - with a difference of 590 to 600 tomans between them. According to Mr. Seif, the Money and Credit Council has decided to prepare the groundwork for a single exchange rate in the year 94 (2015). However, the Central Bank governor implicitly linked this development to the success of nuclear negotiations, stating that a prerequisite for the continuation and success of the single exchange rate process is that Iran's banking system must be in a suitable position regarding its international relations. Is the restoration of international banking relations the only condition for the return of the single exchange rate system to Iran's economy? Without normalizing the status of Iran's banking system in the realm of international banking relations, the single exchange rate in Iran is impossible. For example, Iranian banks have been excluded from the SWIFT network due to sanctions, which is the main hub for message exchanges among thousands of banks worldwide. Iran's return to this network would pave the way for reforming the exchange system in the country. However, besides normalizing international banking relations, other conditions must also exist for the implementation and continuation of the single exchange rate. For instance, a drop in oil prices could create severe tensions in the currency market, complicating this process unless Iran can secure its currency needs through means other than oil. If the currency in Iran becomes single-rate, will the unit rate be closer to the official dollar or the free market dollar? This depends on factors that are not easy to predict, including how much of Iran's blocked currency abroad will return to the country if the process of lifting sanctions begins, and the trajectory of the global oil market. These events will significantly impact the currency supply and consequently its rate. Iran's macroeconomic indicators will also influence future currency rate developments, particularly the inflation rate.