Iranian Rial

screwball · June 16, 2017

First Vice President Es'haq Jahangiri has called on the Central Bank of Iran to strictly deal with illegal financial institutions as part of the government's efforts to crack down on corruption.

He urged CBI to clarify the situation of unauthorized credit institutions and their depositors, as these institutions disturb the country's monetary system.

"The fight against corruption will continue in the next administration," Jahangiri said in a meeting of the Office for Combating Economic Corruption on Tuesday, IBENA reported.

The vice president's urging comes as a number of lawmakers wrote a letter to President Hassan Rouhani on Tuesday, asking him to assess the situation of bankrupt credit institutions' depositors, especially Arman and Caspian, at the Supreme National Security Council.

They complained about the lack of response of officials and expressed concerns that the crisis might turn into a national threat.

The meeting on fighting corruption was also attended by other officials, such as Majlis first deputy speaker, minister of intelligence, CBI's governor, Tehran prosecutor and a number of MPs.

"All the country's three forces have shown determination during the past four years to fight corruption while the Office for Combating Economic Corruption has shown a good performance, especially in large-scale cases, and this approach will definitely continue during the next government's tenure," Jahangiri added.

Unlicensed institutions, which are active in the informal money market, reportedly hold 25% of the entire liquidity. They proliferated during the tenure of the former administration, continue to be the bane of banks and have proven extremely problematic for the current government since it was repeatedly forced to bail out depositors.

These institutions have also been recognized as one of the main reasons hindering a further decline in bank interest rate that currently stands above 15%, while CBI has stressed that it needs to have a gap of just 2-3% with the inflation rate, currently in single digit zone.

Judiciary Spokesman Gholamhossein Mohseni Ejei also emphasized the necessity of countering uncertified credit institutions, noting that "there should be a way for people to invest even small amounts of money in the production sector to keep them safe from unauthorized credit institutions".

The Money and Credit Council–a decision-making body–recently gave the central bank extra authority in addition to its legal mandate to implement “complete and all-encompassing oversight over monetary and banking institutions” and to “organize the informal monetary institutions and market”.

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screwball · June 16, 2017

As Qatar's rift with a Saudi-led Arab coalition deepens and brings the gas-rich emirate closer to Iran, the head of Iran Export Confederation said any development of ties between Tehran and Doha would hinge upon banking cooperation.

"Qatar's banking hurdles for Iranian banks still persist and if the country wishes to work with Iran in light of recent developments, it must restore banking ties with Tehran to their former status [before the sanctions] because the nuclear accord has been implemented and Iranian lenders are no longer under sanctions," Mohammad Lahouti told IBENA.

The regional crisis erupted after a coalition consisting of the UAE, Egypt and Bahrain led by Saudi Arabia cut diplomatic ties as well as all land, marine and air connections with Qatar as of last Monday.

According to Lahouti, the reality of the situation is that following the implementation of the Joint Comprehensive Plan of Action in January 2016, "Qatar has made no new openings in its banking ties with Iran" which is partially because countries in the Persian Gulf region are less than eager to restore their economic ties with Iran to pre-sanctions levels.

Referring to policies employed by a number of member states of the (Persian) Gulf Cooperation Council, the official said this lack of will stems from political matters and has hindered Iran-Qatar banking ties after the JCPOA and is the reason why Iran has almost zero correspondent banking ties with the Arab state.

Lahouti noted that at present only Bank Saderat Iran is active in Qatar, but Qatari banks do not engage in business and transactions with it.

As to why the banks are unwilling to establish ties with their Iranian counterparts, the head of Iran Export Confederation said there are many reasons, namely Iran's status with the Financial Action Task Force and "the regional policies of Persian Gulf countries".

Last June, the intergovernmental FATF, an internationally recognized entity mandated with devising regulations on fighting money laundering and combating financing of terrorism, suspended active countermeasures against Iran but made the country's removal from its blacklist contingent on its measures next year.

As its next heavily consequential sessions of June 18-21 for Iran draws closer, the FATF decision may make or break future prospects.

However, the official says the way international banks regard their Iranian counterparts from the perspective of costs and gains is the deciding factor in their ties, or lack thereof.

Insignificant Trade

Lahouti elaborated that Doha's trade interaction with Tehran is low, which pales in comparison to its extensive trade with the US and European countries. Therefore, instead of risking potential fines from the US government, which have in the past been slapped on a number of known international banks, namely BNP Parbias, ING and Commerzbank AG, "Qatar prefers to maintain its markets and not put its banks in jeopardy".

According to the official, Tehran-Doha trade amounts to $180 million at its best, about $30 million of which form the share of Qatari exports to Iran.

"As a result of this inconsiderable amount of trade, the administrations of both countries have not pursued establishment of banking ties and did not pay any attention to it," he added.

After the blockade, Iran has sent four shipments of food to Qatar using Iran Air Boeing 747s from airports in Tehran and Shiraz and has allowed the country's flights to go through Iranian airspace.

As Lahouti notes, normalization of banking ties and facilitation of visa issuance for Iranian traders by Qatar is a "necessity" for broader trade ties with Tehran.

If banking ties are established, he said, finance, opening lines of credit and employing them will prove helpful and "considering widespread construction activities in Qatar, the two countries can have good cooperation in technical and engineering services".

Asked whether any problems loom over insuring exports to Qatar, the official, who is also a member of the Iran Chamber of Commerce, Industries, Mines and Agriculture, said that as trade volume has been so low, not much attention has been paid to goods insurance.

However, Lahouti concluded, "the issue of insurance will be solved automatically when banking problems are removed".

Topics

Iran-Qatar Relations

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screwball · June 16, 2017

Saeed Jalili

.

Domestic Economy Desk

The 926-km railroad linking the capital Tehran to the eastern religious tourism hub of Mashhad is part of China's New Silk Road initiative named "One Belt, One Road", which will cut short a long journey for Iranian passengers and cargo.

“All obstacles to the implementation of the project have been removed and, next week, operations for the electrification of Tehran-Mashhad line will begin,” deputy for Islamic Republic of Iran Railways, Maziar Yazdani, said.

“Previously we had signed a contract regarding the financing of the project–a $1.6 billion cheap loan,” he was quoted as saying by ILNA in a press conference.

China National Machinery Import and Export Corporation, known as CMC, is in charge of the railroad's electrification.

Asghar Fakhrieh-Kashan, deputy minister of roads and urban development, who oversees Iranian firms’ talks with international businesses, said last month Iran had finalized a €2.2 billion deal with the Chinese company in this regard.

Speaking to Financial Tribune on Wednesday, Fakhrieh-Kashan stressed that the final financial documents have not yet been signed, though he stressed that construction work will likely be started by either the Chinese company or its Iranian partner MAPNA Group.

He said the official financial deal is expected to be signed late June or early July.

Two-thirds of the contract are financed by the Chinese government and the rest is covered by Chinese insurer China Export and Credit Insurance Corporation Sinosure.

Iran resolved issues with government guarantees during the Iranian Economy Minister Ali Tayyebnia’s visit to China last month to represent Iran in the New Silk Road summit. He met with senior Chinese officials, including his counterpart Xiao Jie and Chairman of China Banking Regulatory Commission Guo Shuqing.

The route, which will be a strand of China’s New Silk Road, was proposed by He Huawu, the chief engineer of China Railway Corporation, in late 2015. The idea came just before the sanctions imposed on Iran over its nuclear program were lifted in January 2016, as part a deal Tehran clinched with world powers months earlier.

The proposed 3,200-kilometer New Silk Road rail link would begin in Urumqi, the capital of China's western Xinjiang Province and end in the Iranian capital. It connects Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, according to China’s state-owned paper China Daily.

From there, it would join Iran’s east-west network leading to Turkey and eastern Europe. It could also open a way to Europe via a developing rail route from southern Iranian ports to Azerbaijan and Europe.

The Belt and Road initiative, put forward in October 2013 by Chinese President Xi Jinping, includes several corridors through land and sea, including the New Silk Road rail route.

The route would become a tailwind for transport of goods and energy between Iran and China, which have set a long-term bilateral trade target of $600 billion/year.

For Iran, the electrification of Tehran-Mashhad line is part of its wider rail development plans. Its vision plan stipulates the electrification of all railroads by 2025. But the country is also aware of its capacity regarding global transport and logistics.

In a meeting with his Chinese counterpart in China last month, Tayyebnia said, “Iran’s position in Xi Jinping’s innovative plan to revive the New Silk Road is spectacular and ideal. Therefore, we intend to play an effective role in its implementation.”

He noted that Iran has been a part of the ancient Silk Road—a route contributing for centuries to trade and cultural exchange—stretching from Japan to the Mediterranean Sea and intends to have a more important part in the new plan.

"The Chinese company will start operations with a 138-km railroad connecting Mashhad to the city of Neyshabour," Yazdani said, adding that the traffic on the line will not be interrupted while construction proceeds.

The project is expected to be completed in four years.

The Tehran-Mashhad line is double-tracked and both tracks will be electrified as part of the deal with the Chinese company. This will raise the speed of the line from the current 160 kph to 200 kph, reducing the duration of a trip between the two cities significantly.

A subsidiary of China General Technology Group, CMC is an international engineering contractor in transportation infrastructure, industrial facilities and power plants.

In 2014, the company built the Ankara-Istanbul high-speed railroad, together with China Railway Construction Corporation Limited and Turkish companies.

MAPNA Holding signed a preliminary deal in October 2016 with Germany’s Siemens for the joint manufacture of 70 electric locomotives to be used on the Tehran-Mashhad route.

screwball · June 16, 2017

Iran’s media say the country is preparing to receive a major credit line worth $13 billion from South Korea for several of its industrial projects within the next few weeks.

The Persian-language newspaper Sharq reported that negotiations to receive the credit line were almost complete and that Finance Minister Ali Tayyebniya would travel to Seoul soon to finalize the procedures for Iran to receive it.

Sharq added that Korea Eximbank (KEXIM) would provide the lion share of the funds at $8 billion. The rest of the funds - $5 billion - would be provided by Korea Trade Insurance Corporation.

The cash would be accordingly used for projects already approved by Tehran and Soul. They include the renovation of Isfahan Refinery as well as the construction of Siraf condensate refineries. A certain portion would also be allocated for producing ethane in South Pars Phase 12.

South Korea and Iran have also agreed over the construction of a hospital, Sharq added, without specifying where and with what capacity the hospital would be built.

The report further added that the allocation of the $13-billion credit line by South Korea to Iran would open the way for Japanese and European banks to do the same with the country.

South Korea announced in May that it had prepared a package of loans worth a total of $25 billion for the development of Iran’s infrastructure projects.

The announcement was made during a visit to Tehran by South Korea’s former president Park Geun-hye.

During her stay in Tehran, president Park oversaw the signing of over a dozen agreements between Iran and South Korea to boost cooperation in areas such as energy, power, auto industry and railway section.

screwball · June 17, 2017

The increase in bank fees approved earlier by the Central Bank of Iran has become effective. The CBI had first announced the directive in September 2016. The change is aimed at diversifying banks’ revenues and increase their non-interest incomes, IBENA reported. New bank charges have been implemented as of June 10, which could be received by banks. The fees are not fixed, but to encourage completion of the process, lenders are allowed to charge less by up to 30%. The measure has made money transfer more expensive through banks without using e-banking services, which hovers between 5,000 rials ($0.13) to 33,000 rials ($0.88) depending on the amount of cash transfer. The CBI has also raised fees for paying utility bills through bank branches by 200% from 6,500 rials ($0.17) to 20,000 rials ($0.53). E-banking services including money transfer through ATMs have remained unchanged since 2009 and have remained unaffected by the new measures.

screwball · June 17, 2017

Iranian banks to open branches in Seoul

نشست خبری علی طیب نیا وزیر اقتصاد و دارایی

News ID: 4006867 - Sat 17 June 2017 - 13:53

Economy

TEHRAN, Jun. 17 (MNA) – Iranian Economy Minister Ali Tayebnia, who is visiting Jeju, met and talked with the South Korean Minister of Strategy and Finance Kim Dong-yeon.

The main axes of talk between the Iranian and South Korean finance ministers included creation of Lines of Credit (LOCs) between banks of Iran and South Korea, launch of brokerage ties as well as opening branches of Iranian banks in the East Asian country.

Iran’s Economy Minister Ali Tayebnia has travelled to South Korea to take part at the 2nd Annual Meeting of the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) to be held in the city of Jeju from June 16-18, 2017.

On the sidelines of 2017 AIIB Jeji, the Iranian minister met with South Korea’s Dong-yeon and the two sides exchanged views of economic issues like creating credit lines between the two sides and opening branches of Iranian financial institutions in South Korea.

Accordingly, talks with South Korean banks over creation of LOCs are being finalized though agreements need to be reached by ministers of the two countries in order to resolve certain issues.

Moreover, measures already taken to provide broker relations or to open branches of Iranian banks in the East Asian state need to be pursued more seriously by banks of both sides.

Facilitation of conversion of currency resulting from sales and transport of crude oil was yet another issue discussed at the joint meeting between Tayebnia and Dong-yeon.

HA/4006548

Comment

screwball · June 18, 2017

s the administration of President Hassan Rouhani is preparing the stage for deeper economic reforms in its second term (due to start in mid-summer), private sector leaders are taking it to task for failing to fulfill the key promise of scrapping the dual foreign exchange rate regime.

In their latest comments, some senior Chamber of Commerce officials have repeated calls for forex rate unification, expressing concern that the issue may be overshadowed by other controversies such as the splitting of ministries that had been merged under former president Mahmoud Ahmadinejad.

"Measures undertaken by the government have created the necessary requirements for unifying forex rates. It is obvious that the private sector also has higher expectations now because we actually have no option but to unify the rates," Mehdi Jahangiri, vice-president of Tehran Chamber of Commerce, Industries, Mines and Agriculture said in comment published on the TCCIMA news website.

The official referred to foreign exchange controls by decree as one of the major problems.

Noting that such controls and restrictions "have not worked in any country and will not work in Iran", he said currency rates should be the function of market dynamics.

While many officials, including Central Bank of Iran Governor Valiollah Seif had initially promised that rate unification would be realized by the end of the previous fiscal in March, that has not materialized yet due to what officials say are "unfulfilled conditions."

Jahangiri spoke about the government's proposal to break up three ministries, saying the administration would do better with deeper feedback from experts because "I believe no such analysis was conducted in the initial merging and it was a rather emotional decision".

Pedram Soltani, deputy director of the Iran Chamber of Commerce, also stressed the importance of unifying the dual forex rates, detailing conditions under which it can and will become possible.

He says there are two kinds of currencies: one held by the CBI and which has limited use, and the currency traded in the parallel market.

He says the free market foreign exchange belongs to exporters and importers and can be traded in various countries with more flexibility.

If banking ties are expanded so that the CBI can be able to transfer hard currency under the auspices of the free market, "it is at that time that rates can become unified. Then we will have the ability to defend the unified rates and the market rates would not be different from the official rates".

Seyyed Hossein Salimi, deputy director of the Money and Capital Market Commission with the TCCIMA also spoke of the currency rates, referring to unification of the dual exchange rate system as among the issues the Rouhani administration was unable to resolve during its first term.

However, pointing out that during Ahmadinejad's tenure the national currency lost 70% of its value almost overnight, Salimi commended the fact that in spite of all the challenges, "exchange rates were balanced and as the law states, fluctuations in the rates were in line with the inflation rate".

Iran has two exchange rates. The official CBI rate was fixed at 32,469 rials on Saturday for the greenback and the rate was 37,350 in the free market.

The CBI has succeeded to narrow the gap between the official foreign exchange and free market rates as their difference stood at 18% in February.

screwball · June 18, 2017

Old but nit found until now

One of the biggest hurdles of foreign investment is multiple forex rates since investors cannot be sure of the value of their investment when they intend to repatriate it out of the country, a member of Tehran Chamber of Commerce, Industries, Mines and Agriculture said.

“Achieving a high economic growth rate is not possible without attracting foreign investment which will not happen unless necessary infrastructure such as a unified forex rate is provided,” Seyyed Reza Haji-Aqamiri was also quoted as saying by IBENA.

The official noted that the government can control forex rates since most of the currencies come from oil sales collected by the government while the share of non-oil exports is not considerable, therefore the Central Bank of Iran and the government can always determine the forex rate.

“Governments always endeavor to control the forex rate to prevent the depreciation of their national currency. However, the forex rate should be in tandem with the supply and demand dynamic,” he added.

Haji-Aqamiri further said that if the forex rate is unified but not adequate, resources cover the demand for foreign currency and multiple rates will appear again.

Iran adopted single exchange rates in the past only to return to dual or multiple rates when economic conditions worsened due to sanctions or unstable circumstances.

“Last December, when the US dollar changed hands for 42,000 rials in Tehran’s market, the government could have kept it in that range, but they had to bring down the rate as a result of market pressures,” he said.

Iran currently uses two exchange rates: the free market rate that stood at 37,600 rials to the US dollar on Saturday and another official exchange rate for a number of state transactions. The CBI has fixed the official rate at 32,446 rials.

In order to unify the two rates, the government began to gradually increase the official exchange rate for it to come closer to the unofficial market rate and tried to shorten the list of imports eligible to receive forex at the official rate.

All major economic officials, including CBI Governor Valiollah Seif and Economy Minister Ali Tayyebnia, had repeatedly promised that the forex rate will be unified by the end of the last fiscal year (ended March 20, 2017).

However, due to the currency market volatility in the final months of 2016, which saw the rial hitting record lows against the greenback (reaching 42,000 rials to the dollar in the free market in late December), those plans were put on hold indefinitely.

The business community and experts have demanded that the government unify the exchange rates and stop its forex market intervention for propping up the rial.

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screwball · June 18, 2017

The research arm of the Iranian Parliament has published a report on fluctuations in the foreign exchange market during the past few months, advising the Central Bank of Iran to do what it takes for free-floating the rial against other currencies.

The Majlis Research Center points out that the sudden surge in foreign exchange rates against the rial has rocked the money markets every now and then from the start of the last decade, IBENA reports.

The latest such volatility came in November in which "the nominal value of rial weakened against many foreign currencies and gave rise to many questions and much confusion among economic policymakers and businesses, especially the parliament", MRC's report states.

The US dollar began its rally against the rial from November steadily, with the threshold of 40,000-rial per dollar being broken in December. The rial has since gained some ground, with rial at 39,700 to $1 as of Wednesday.

In examining the history of currency market unrest in the country, the parliamentary body concluded that "in the past few years, the fundamental settings for an increase in forex rates have gradually formed and therefore fluctuations in the currency market are not compatible with fundamental variables".

However, the research body adds that a global increase in the value of the greenback, the US elections, a seasonal hike in demand for businesses and a surge in foreign trips and lack of distribution of non-oil foreign exchange during autumn may have influenced the issue.

MRC reports that "the root of recurring fluctuations in the currency market" can be traced back to a policy adopted by the administration and the central bank to "hold on to nominal exchange rates" in exerting its control over the market.

This policy will entail certain repercussions, states the report, such as weakening government control over monetary variables even as the administration tries to maintain a specific value for the rial.

"This will in turn prepare the ground for inflation and the rise in real exchange rates will bring about a gradual increase in demand for foreign currency and hurt domestic industries' competitive edge against their foreign rivals. As a result, with the passing of a number of years, demand for currency will go beyond the capabilities of the central bank and the market will experience fluctuations," the report said.

The research center proceeds by concluding that "the right policy will be to maintain the stability of real exchange rates" which has been referred to in the Fourth and Fifth Five-Year Development Plans.

It also presents other solutions for the government, the central bank and the Securities and Exchange Organization, including improving transparency in the foreign exchange market, decreasing demand for paper currency by free-floating the rial, creating new entities such as the currency futures market and implementing currency swap agreements.

"Considering the totality of fundamental and short-term factors mentioned in the report, MRC predicts that fluctuations in the currency market will abate in the final two months of the current fiscal year (January 20-March 20), but this should not prevent policymakers from implementing major reforms in the currency market."

Focus on Production, Unified Rates

Asadollah Asgaroladi, the head of Iran-Russia Chamber of Commerce, believes that the country must part ways with outdated thinking and push for a unified exchange rate.

"What we are witnessing in the country is a bias over maintaining the value of the national currency. We have no choice but to abandon this thinking and see what the world is doing for fostering production," Asgaroladi said in a talk with Exim News website.

The prominent businessman also suggested that the government unify Iran's dual exchange rates by setting a baseline of 40,000 rials for the greenback.

"We have to remove the current rates such as the 32,000-rial official dollar rate and the parliament must change the 33,000-rial rate devised for the dollar in the annual budget," he said.

"Considering the situation of the market, a rate of between 38,000 rials and 40,000 rials per dollar would be a suitable rate for the dollar and we must move toward rate unification on that basis."

Iran currently uses two official and unofficial currency rates. The central bank and several administrations have discussed the issue of unifying these rates as they pave the way for corruption, but the plan is yet to be implemented.

This is while central bank and top-tier administrative officials have repeatedly promised the plan's implementation by the end of the current fiscal year in March, which seems less than certain now.

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lots of articles nit posted surfacing in archives..interesting

screwball · June 18, 2017

And angain..

The Cabinet announced the details of foreign exchange hedging directive proposed by the Export Guarantee Fund of Iran and approved in the 17th meeting of the Cabinet members on Sunday.

Forex hedging is like an insurance policy covering currency fluctuations for exporters. The maximum duration of the policy is six months while it covers foreign exchange depreciation of 3-35% for export commodities, Banker.ir reported.

The coverage fees depend on the timing of the hedging. For one month, the fee is equal to 0.11% of the total value of the foreign exchange while the rates for two-month and three- to six-month coverage are 0.17% and 0.25%, respectively.

The directive has been notified by Vice President Es’haq Jahangiri for implementation.

A foreign exchange hedge transfers the foreign exchange risk from the trading or investing company to a business that carries the risk, such as a bank.

By setting up a hedge, the company also forgoes any profit if the movement in exchange rate is favorable.

EGFI Director Kamal Seyyed Ali had earlier said that the Central Bank of Iran would allow the banking system to cover the risk of fluctuations in foreign exchange rates, when it manages to unify the forex rates.

The currency market volatility in the final months of 2016, which saw the rial hit record lows against the greenback (reaching 41,500 rials to the dollar in the free market in late December), put the kibosh on CBI plans to scrap the country’s dual exchange rate regime by the yearend.

The business community and independent observers have made strong demands that the government unify the exchange rates and stop its forex market intervention for propping up the rial.

Topics

Iran Currency News Export Guarantee Fund of Iran (EGFI) News

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screwball · June 18, 2017

he Money and Capital Markets Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture–known as the country's private-sector Parliament–has published a report on Iran's foreign exchange policies and the effects of those decisions on the business climate.

The report also outlines the requirements for unifying foreign exchange rates, explicating the optimal way a single exchange rate regime can be adopted, ICCIMA's website reported.

Deciding the best course for the foreign exchange market has always been one of the biggest concerns of economic policymakers in every country and Iran is no exception. The issue has gained renewed attention in the wake of currency market fluctuations in the final months of 2016, which saw rial sink to record lows against the greenback.

In its findings, the Money and Capital Markets Commission has floated the idea that a single exchange rate system should be both "managed" and "floating". It also outlines seven factors needed for the single exchange rate regime to move forward.

Why Unification?

According to the report, there are many reasons for following a multiple exchange rate regime.

One main reason could be that using this system helps cover up the negative consequences of ineffective monetary policies. This includes, for instance, countering runaway domestic inflation through cheap imports, using a lower and subsidized exchange rate.

The report quotes Dr. Mohammad Jafar Mojarrad, a former deputy governor of Central Bank of Iran, as saying that a multiple exchange rate policy is necessitated by domestic or foreign economic shocks, but is also carried out to support domestic industries and direct resources toward specific economic enterprises.

Mojarrad, however, noted that empirical research has shown that the benign effect of multiple exchange rates over the market lasts only for six to nine months and after that, only their adverse effects are felt in the economy.

This, he maintains, is mainly due to direct and indirect restrictions on foreign currency allocation and quotas on imports.

"The experience of other countries on the matter also reflects the fact that the multiple exchange rate policy has not been an efficient and sustainable system but it has been used as a stopgap, aiming to eliminate imbalance of payments and also in high-inflation situations," he said.

Exchange rate regimes are mostly among three groups, namely fixed, multiple and floating.

Iran had been used a "managed floating" exchange regime twice in the past. The first experience dates back to 1993 when it did not last more than a few months due to economic turmoil and the exchange rate regime went back to multiple rates.

The second time though, following the experience gained from previous setbacks and reforming forex and trade policies in order to facilitate and deregulate foreign trade, foreign exchange rate unification was successfully implemented and a "managed floating system" was announced in 2002.

Unfortunately, it only lasted until 2010 when the next administration failed to observe financial and budgetary discipline, and overvalued the rial.

The Central Bank of Iran's authority as the main money and exchange rate policymaker was stripped and the heavy international sanctions diverted the exchange rate regime from its original path. Eventually, after some severe fluctuations, Iran's exchange rate regime went back to multiple exchange rates.

Prerequisites

Currently, Iran has two exchange rates, with market rates varying based on where you are shopping. The official CBI rate is fixed at 32,367 rials and the free market rate is over 38,510 rials, which shows a difference of 18%.

Now the question is, "What requirements can guarantee the successful implementation of a unified single exchange rate system, with managed float?"

According to the report, six factors should be observed:

1. Access to sufficient financial resources

2. Curbing the inflation rate

3. Effective management of currency market fluctuations

4. Fiscal discipline of the government and deficit reduction

5. Establishing correspondent banking relations

6. Forming an organized foreign exchange market

The results of global research and studies show that adopting a single exchange rate system, targeting inflation and implementing complementary policies could work since it is reasonable in many ways and make the decision feasible.

Although using a single exchange rate regime is not probably practical at all times, a managed floating rate allows the economy to achieve its growth targets and control inflation. There is ample evidence that show a multiple exchange rate system or a fixed exchange rate only lead to corruption.

Non-optimal allocation of financial resources undermines the competitiveness of exports and increases imports, which eventually create many problems for economy, such as severe fluctuations in the currency market.

screwball · June 19, 2017

Since Iran’s nuclear accord with world powers–officially known as the Joint Comprehensive Plan of Action–was implemented on January 16, 2016, the country has engaged in negotiations to attract foreign direct investments worth $80 billion, announced the director of the Organization for Investment, Economic and Technical Assistance of Iran.

“Iran has held negotiations with Italy’s Medibank and SACE export guarantee for €2 billion ($2.24 billion), Exim Bank of China for $30 billion, China Development Bank for $15 billion, Korea Export–Import Bank for $8 billion and Korea Trade Insurance Corporation for $5 billion to receive foreign finance,” Mohammad Khazaei was also quoted as saying by Shada, the official news outlet of the Economy Ministry.

According to the official, other parties involved in finance negotiations with Iran include Japanese Nippon Export and Investment Insurance and the Japanese Ministry of Finance for $10 billion, the Japan International Cooperation Agency for €1.2 billion ($1.34 billion), Russian Ministry of Economic Development for €5 billion ($5.6 billion) and the Norwegian Guarantee Institute for Export Credits for €1 billion ($1.1 billion).

Khazaei, whose organization helps facilitate the flow of foreign finance and is affiliated with the Economy Ministry, noted that so far there have been no problem in bringing in the finalized finances. In May, it was announced that SACE, Italy’s state-owned export credit agency, has allocated a credit line to Saman Bank, but the amount was not disclosed.

The combined $13 billion by Korean lenders is part of a recently unveiled agreement for which Iran’s Economy Minister Ali Tayyebnia traveled to Seoul on Saturday. It is to be allocated for Iranian projects such as Isfahan refinery, eight gas condensates refineries in Siraf and Asaluyeh, as well as a hospital, among others.

Khazaei, who is also a deputy economy minister, referred to a $400 million Indian finance, a part of which has been used in Chabahar Port, adding that “a €1 billion project for the construction of Bandar Abbas gas plant is also underway” without providing further details about the source of funds.

According to the official, FDIs from India and Russia have so far been finalized and “the Chinese finance for the Mashhad rail project is being finalized”. Last year, the government announced that it had approved the attraction of $11.8 billion in foreign direct investment during the 12 months to December 21.

Unconditional FDI

Asked whether the finalized funds come with strings attached, the official said any FDI agreements, as per the order of Leader Ayatollah Seyyed Ali Khamenei, will only be signed under “normal circumstances”.

“It is the Iranian side’s persistence that sometimes prolongs negotiations with other countries and Iran would have been able to seal many deals much sooner if they had come with no ifs or buts,” he added.

Khazaei also denied any potential problems with companies insuring these foreign finances.

He admitted that at the beginning of the previous fiscal year (March 2016) and only months after the implementation of the nuclear accord, Iran faced problems because of its debts to foreign governments (incurred during the sanctions targeting the country’s financial system.)

However, “Iran’s debts with these institutions were cleared with the assistance of the Central Bank of Iran and the Ministry of Foreign Affairs” and the country refused to accept any extra fines that had been imposed as a result of late payment.

The official pointed out that credible investment insurance agencies such as the Korean K-SURE, Italy’s SACE, Germany’s Hermes, the Oesterreichische Kontrollbank and the China Export and Credit Insurance Corporation have now said they are ready to continue with insuring Iran investments under normal conditions.

Khazaei emphasized the significance of this new development by saying that after a rough period in which monetary and financial transactions were extremely difficult or non-existent, and the banking system was cut off from the world, “international institutions once again trust the country”.

screwball · June 19, 2017

Just now, screwball said:

The combined $13 billion by Korean lenders is part of a recently unveiled agreement for which Iran’s Economy Minister Ali Tayyebnia traveled to Seoul on Saturday. It is to be allocated for Iranian projects such as Isfahan refinery, eight gas condensates refineries in Siraf and Asaluyeh, as well as a hospital, among others.

Interesting timing...

sandfly · June 20, 2017

Free floating the currency,,do it

screwball · June 21, 2017

Governor of the Central Bank of Iran has released a statement reassuring the public that the bank is determined to end the lengthy saga of uncertified credit institutions, the news of which resurfaced recently.

“The comprehensive plan to organize the shadow banks will be implemented in various phases and after taking legal steps through proposals, negotiations and myriad expert meetings,” Valiollah Seif wrote in his official channel in the social media app Telegram.

Seif also touched upon measures undertaken by CBI in recent years to organize the uncertified credit institutions, which mushroomed during the tenure of the former governments.

The crisis has prompted the regulator to revoke some of these companies’ permits, breaking up some and merging a handful of others.

In the latest development related to these institutions, which has also entangled the parliament, Farshad Heydari, CBI’s deputy for supervision, announced that one of the institutions, which has become the subject of a new controversy, is becoming legal.

“The Samen credit institution has formally applied for a CBI permit and is on its way to become a certified entity,” Heydari told IBENA, in an effort to assure the company’s depositors about its solvency.

blueskyline · June 21, 2017

ICCIMA held a meeting in Tehran on Saturday to weigh on the long-overdue plan to unify foreign exchange rates. (Photo: Bahareh Taghiabadi)

Thursday, June 22, 2017

CBI Moving to Rate Unification Conditions

The Money and Capital Markets Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture held a meeting on Saturday to weigh in on the requirements of the long-overdue plan to unify foreign exchange rates and the country's progress in achieving this goal.

The Central Bank of Iran's deputy governor for foreign exchange affairs was the special attendee who said the Iranian government considers foreign exchange rate unification necessary and intends to implement it as early as 2013.

"Rate unification is only useful when it is stable and consistent, but if it is done half-heartedly, we won't be able to put it right for years," Gholamali Kamyab was also quoted as saying by ICCIMA's official news website.

Kamyab noted that the volume of forex arrears is a crucial prerequisite for adopting a single exchange rate regime, which is at a low level at present since Iran was unable to absorb any significant foreign loans in recent years.

"Our external debts are lower than international standards and the amount of short-term accounts is not at a high point either," he added.

Kamyab referred to CBI's measures taken so far to help achieve rate unification such as shortening the list of imports eligible to receive foreign currency at official rates as well as making changes in foreign exchange regulations, which will be announced after the rate unification is implemented.

If You Fail

The CBI official pointed to the first attempt at rate unification in 1993 when the country's foreign debts exceeded $30-40 billion and national reserves were at an all-time low.

The economy back then totally depended on oil income, which led to the scheme's failure and problems for businesses.

"However, rate unification was implemented precisely and completely in the second attempt in 2002 but unfortunately proved short-lived due to political events and unsound economic policies," he said.

Kamyab considered the growth in non-oil exports positive saying it would help the process of scrapping dual exchange rates. "Our economy should be export-oriented with exports taking center stage in all economic policies".

Kourosh Parvizian, the head of the commission and president of the Association of Private Banks and Credit institutions, also attended the meeting and elaborated on the positive aspects of forex rate unification as it would benefit both ordinary citizens and the production sector.

Iran had adopted single exchange rates twice in the past. The first experience dates back to 1993 when it did not last more than a few months due to economic turmoil and the exchange rate regime went back to multiple rates.

The second time though, following the experience gained from previous setbacks and reforms in forex and trade policies to deregulate foreign trade, foreign exchange rate unification was successfully implemented and a "managed floating system" was announced in 2002.

Unfortunately, it only lasted until 2010 when the next administration failed to observe financial and budgetary discipline.

Iran currently uses two exchange rates, the free market rate, which stood at 37,410 rials to the US dollar on Wednesday, and another official exchange rate for state transactions. CBI fixed the official rate at 32,500 rials on Wednesday.

In order to bring the rates together, the government began to gradually increase the official exchange rate for it to come closer to the unofficial market rate. CBI has succeeded in narrowing the gap between the official foreign exchange and free market rates as their difference stood at 18% in February but it currently hovers around 13%.

"We are not saying the nuclear deal has resolved every issue but foreign banks' unwillingness to open credit lines for us has nothing to do with that," Kamyab said, noting that banking relations are improving, though hurdles pertaining to the banks' internal problems remain.

"We have to admit that international standards have changed and we have fallen behind."

While many officials, including Central Bank of Iran Governor Valiollah Seif had initially promised that forex rate unification would be realized by the end of the previous fiscal in March, that has not materialized due to what the officials call "unfulfilled conditions".

Since the removal of international banking restrictions in January 2016, Tehran has secured links with only a limited number of smaller banks as US sanctions remain in force and large foreign institutions still fear potential fines.

Banks remain nervous after US penalties, including a $9 billion (£7.32 billion) fine on France's BNP Paribas, were imposed in 2014, partly for violating nuclear-related financial sanctions against Iran.

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