Strict New Procedures for Iran Currency Trading After Protest

NYTimes.com — Iranian police officers moved to arrest unlicensed currency dealers and increase patrols in the center of the capital on Monday in order to prevent unofficial trading from disrupting new government-imposed rates of exchange for the national currency, the rial.

Over the past days Iran’s leaders have sought to stabilize the value of their currency, after a market panic last week when the rial fell by about 40 percent against the United States dollar and other foreign currencies.

Now, only those traders licensed by Iran’s Central Bank may buy and sell the rial for foreign currency, and at rates that value the rial at 25,500 to the dollar — substantially more than last week, when it took as many as 37,500 rials to buy one dollar.

But the new restriction on unofficial trading also had an adverse effect, causing lines of customers who wanted to sell their rials at the better rate in anticipation that it would eventually weaken again. Several authorized money traders refused to sell foreign currency in large quantities and some hired private security companies in order to regulate the flow of customers.

In an additional measure to help ensure that the state’s foreign currency would be used only to buy the most important imports, a member of Parliament said that all luxury imports had been forbidden.

The politician, Gholamreza Mesbahi-Moghaddam, also said that Parliament has been preparing to discuss the suspension of the second phase of President Mahmoud Ahmadinjead’s subsidy reform plan, Iran’s English-language state television channel Press TV reported. The lawmaker stressed that people would continue to receive a monthly cash payment, which the government is due to deliver in a week’s time.

The monthly payment, of about 450,000 rials a person to nearly 60 million people, is viewed by some economists as a contributor to inflation by raising the number of rials in circulation.

Iranian leaders have called the currency crisis a plot by Iran’s enemies to subvert the economy, which has faced acute problems that many economists in Iran and abroad attribute to government mismanagement and the cumulative effects of the sanctions imposed by the West over the disputed Iranian uranium enrichment program.

The sanctions, which have constricted Iran’s ability to sell oil and conduct international financial transactions, have sharply increased the price of imports and contributed to the loss of confidence in the rial, which in turn has fueled inflation. While the Central Bank of Iran has said the annual inflation rate is about 25 percent, by some outside measures it is much higher. Steve H. Hanke, an economics professor at Johns Hopkins University and a senior fellow at the Cato Institute, a conservative research institute in Washington, said he calculated that the rate is now as high as 196 percent.

Members of Parliament have garnered enough votes to call Mr. Ahmadinejad in for questioning over the currency crisis, the semiofficial Fars news agency reported, but it is not clear when or if this will happen.

On Tehran’s grand bazaar, the scene of an angry demonstration against the falling currency on Wednesday by shopkeepers and passers-by, all shops that had closed because of the protest had reopened by Monday, but there were many fewer shoppers than normal. Many businessmen said they did not know what to charge for their products because of uncertainty over the foreign exchange rates.

“How can we sell enough to pay our debts?” asked Saeed Jalilian, a garment seller, sitting in an empty shop. “I have no customers. I will go broke.”

Still, in other shopping centers in the capital people could be seen having lunch and buying products, but most whispers of conversations were about the falling rial.

Experts agreed the government had to do something to stop the fall of the rial, but said they were worried that in the long term the downward pressure would be difficult to counteract.

“It is clear that these new rates are only sustainable if the Central Bank continues to feed foreign exchange into the market,” said Mousa Ghaninejad, an economy professor at Tehran’s Shahid Beheshti University. He said that lack of confidence in the rial, following inflation and sanctions, were not going away.

“My heart wishes the for fall of the rial to stop, but economic rationale tells me otherwise.” Mr. Ghaninejad said.

Ramtin Rastin contributed reporting from Tehran, and Rick Gladstone from New York.