Tension has returned to the Iranian currency market after a sudden drop in the Iranian currency against the dollar on Monday after weeks of cautious calm following a wave of arrests that targeted economic activists in the Iranian capital.
The activists were accused of causing the fluctuation of dollar prices and its rising to the highest levels in recent months.
The price of the dollar rose again and hit record high in Iran as a result of increased demand from Iranians, who prefer to shift their savings to the dollar, in light with expectations of the return of sanctions to Iran and the possible withdrawal of the United States from the nuclear agreement.
The rial has lost around a quarter of its value in the past six months, hitting 50,860 against the US dollar, according to AFP.
Parliament member Mahmood Sadeqi said he had contacted officials at the central bank, adding that officials had informed him of taking measures to manage the currency market.
“Market inflammation has psychological dimensions" due to media attention to fluctuations in the financial market.
In January, Iranian President Hassan Rouhani promised to control dollar price and retain calmness to the market.
Iranian police started mid-February a wave of arrests in Tehran, targeting economic activists in the dollar market. The public prosecution said that it closed 1,200 bank accounts linked to the currency market, worth 37 billion tomans.
The government also announced that the dollar had been pumped into the market after buying it to stop rising prices.
During the past month, news agencies have published pictures of long queues of Iranians near currency exchange offices despite a slight decline in the value of the dollar.
“The issue is psychological rather than economic. There’s no reason to buy dollars except in the hope that you can sell them later at a higher rate,” founder of the Europe-Iran Forum Esfandyar Batmanghelidj told AFP.
He said Iranians were reacting to worrying news from the United States, where US President Donald Trump this month appointed hard line anti-Iran figures Mike Pompeo and John Bolton to senior posts in his administration.
“I see many people looking to invest in neighboring countries because this fear is spreading about the future of the JCPOA,” said Navid Kalhor, a Tehran-based financial analyst.
Local officials have complained that Iranians are hoarding billions of dollars as local banks run short of cash.
“I have friends who go to banks and ask for 15 or 20 million rials ($300 or $400) and they’re told to come back in a week because they’re out of cash,” said Kalhor.
The devaluation poses a major problem for Rouhani’s government, which had hoped to attract massive foreign investment in the wake of the nuclear deal.
Already facing huge obstacles from remaining, non-nuclear US sanctions, the collapsing currency will serve as another deterrent to potential investors, Batmanghelidj said.
“Even in an instance where an investor is willing to operate in Iran, the devaluation is very concerning. If you invest now and the currency falls even 15 percent, you have to discount that from your returns, and that’s very difficult to hedge against,” he explained.
