Iran's Regulated Forex Market Waiting for the Opportune Time
EghtesadOnline: The long-awaited regulated foreign exchange market is ready for launch but is waiting for the opportune inauguration time in order to have the best possible impact on the forex market, the CEO of the company overseeing the market said.
“The timing for launching the market is crucial and we want a time when it would have the best effect on the currency market,” Mahmoud Shekasteband told Tejaratnews website.
As per earlier official announcements and reports in the Tribune and other local media outlets, the regulated market was scheduled to start operations on July 2.
Shekasteband noted that there is no hurdle to launching the market, adding that the governor of the Central Bank of Iran should make the decision, according to Financial Tribune.
The regulated forex market is touted to stabilize the chaotic currency market by creating and organizing an open and transparent environment where foreign currency is traded in cash via an electronic platform.
It will be launched with the participation of banks and certified exchange shops under CBI oversight.
Bane of the Economy
A member of the Majlis Economic Commission says the functionality of the market is contingent on proximity of forex rates in the open market to the Integrated Forex Deals System (locally known by its Persian acronym Nima).
“The market cannot be launched so long as the government tries to pull the rates in the open market and Nima closer,” Masoumeh Aqapour was quoted as saying by the parliamentary news website ICANA.
Nima is a platform where exporters sell their currency earnings to companies wanting to import non-essential goods.
Noting that forex rate differences in such markets would largely benefit middlemen and those involved in arbitrage, she said as long as multiple forex rates exist, “these people will continue to create obstacles to the launching of the regulated forex market”.
Economists and experts from different schools for years have pleaded (without success) to successive governments to put a permanent end to the multiple currency rates seen as a bane of the struggling economy that has been under western sanctions for four decades.
The forex rate at Nima is lower than open market rates and this will give rise to more speculative activities, she warned.
In order to address this key issue, reports say the CBI has been struggling to reduce the difference between two rates to a minimum.
A report on foreign currency trade since the beginning of the current fiscal year (March 21) up until July 2 says that the difference between Nima rates and open market rates declined from the previous 62% in the first month of Iranian year to April 20 to 36% in the month to June 21. The difference fell further to 16% by July 2.
Accordingly, the difference between two rates declined from 58,279 rials in the first month of the fiscal year to 39,946 rials by the end of Q1 on June 21, and 20,247 rials by July 2.
Aqapour acknowledged the CBI effort to bring the two rates closer, adding that with the different rates in the market the regulated forex market would not be welcomed as presumed by its architects.
“The mechanism should take effect when the currency market returns to normalcy,” she said, acknowledging the CBI’s relative success in stabilizing the forex market in the past few months.