News / Middle East

Plunging Currency Adds to Iran's Woes

Handout photo showing the front of the new Iranian 100,000 Rials bank note (2010 file photo).
Handout photo showing the front of the new Iranian 100,000 Rials bank note (2010 file photo).
The long, steady decline of the Iranian rial took a precipitous turn Monday, with the currency falling more than 17 percent in trading. At one of the lowest points, it took 35,000 rials to buy one U.S. dollar. Less than a year ago, it took only 13,000 rials. 

The drop was so steep that popular Iranian currency data websites were no longer providing information about the dollar exchange rate. On, the dollar rate for the rial was blanked out, and was replaced with a message reading, “Account Suspended.”

Alex Vatanka, a scholar at the Washington-based Middle East Institute, said the rial’s fall was due to a combination of economic sanctions imposed by Western countries and internal attempts at economic reform.

“It has resulted in an interesting and painful cocktail that Iranians are seeing when they go out and buy groceries,” he said.

The sanctions have severely restricted Iran’s ability to sell oil on the world market and limited its access to the international banking system. They also have led to inflation, which hovers at around 25 percent.

Ali Ansari, a professor of Iranian History at the University of St. Andrews in Scotland, said the decline in the rial “reflects the public’s growing lack of confidence in the government and its ability to manage the crisis that is developing.”

“The short term result will be further inflation and a further fall as people move to acquire hard currency and move money abroad,” he said.

The worsening economic conditions in Iran led Israeli Finance Minister Yuval Steinitz to say Sunday that Iran's economy was "on the verge of collapse," but such talk may be premature, according to Ansari.

“Unrest will come, but it is too early yet,” he said.

Vatanka agreed, saying he wouldn’t go so far as to suggest an economic collapse.

“It’s a powerful state, and the supreme leader has the loyalty of the top brass. He [Ayatollah Ali Khamenei] may have a pesky president, but when [President Mahmoud Ahmadinejad has] gone too far, he’s been pulled back in.”

To try to stabilize the rial, the Iranian government opened a currency exchange center last month under the supervision of the central bank. It was designed to provide discounted dollars to importers of some essential goods.

A lack of dollars from oil revenue means the demand for dollars is higher than the supply. The plunge in the rial may indicate that because of falling oil revenue, the exchange does not have enough dollars to meet demand.

"This [exchange] center has helped accelerate the soaring dollar rate," Iranian economics columnist Hirad Hatami told AFP.

But he stressed there is also the issue of speculation.

“This is a bubble which is rooted in the operation of the exchange center,” he said.

For ordinary Iranians, the fall of the rial is unsettling.

In an online interview, a young Iranian said it was causing his business to lose money. He said he’d recently ordered 30,000 Euros worth of imports from Europe at a rate of 28,000 rials to the Euro.

“As of today, [the] Euro hiked up to 45,000 rials, so by the time my package arrives, it will be impossible for me to sell the material without losing money,” he said in an interview with VOA conducted online. “Right now if I return everything, even pay a 30 percent fee for their loss and get my Euros back, I would lose less money! Basically, if I had been sitting on my cash these two months and done nothing, I would have made a lot of profit."

The currency’s fall is also wreaking havoc on every day lives, with prices skyrocketing on essentials.

"Today I went to the hospital to buy a special post-cancer medicine that my mother always uses," said an Iranian citizen in an online interview. "The price had tripled since two weeks ago."

For other Iranians, even purchasing simple items like home appliances has become nearly impossible.

"We went to all the Samsung store on Shariati Avenue last week, trying to buy a fridge. Samsung would not sell any and told us that everything is sold out, including the ones we saw right there at the stores,” said another Iranian online. “They wouldn't give us price quotes either. Everyone's life is now dependent on the value of dollar ... it's what everybody is talking about, even in smaller cities ... nobody thinks about anything else these days."

While it has been common practice for Iranians to keep their savings in dollars, with the current plunge, they're converting their every day spending money to dollars as quickly as they can.

"People try to keep dollars instead of rials," said a young engineer in an online interview."I've seen my friends buy $1,000 at a time and then convert it little by little into rials and spend it day to day."

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