Unification of the Exchange Rate of ExchangeRate of Iran
The economic position of Iran has severely been damaged since it wassanctioned by USA and other powerful countries. However, in 2015, thenuclear program agreement was met making the country to startorganizing its economic policies such as exchange rate.
Thisessay examines the government of Iran’s plan to unify its currencyafter the lifting of the sanctions.
Iran’scurrency (Rial) has over the years been subjected to two exchangerates: the official and the unofficial exchange rate. This has beendue to the fact that sanctions made it hard for the country to accessforeign currency. According to Iran’s central bank governor,Valiolla Seif, the unification of the exchange rate will enable thecountry to have an easy access of foreign currency and it will beable to attract investors from different parts of the world.
Becauseof the lifting of the ban against the country, the country isexpected to experience an increase in flow of currency from othercountries. The unfreezing of its foreign asset will also boost theforeign income from other countries. Iran’s currency will also beable to gain values, because it has lost approximately 80% of itsvalue, which leads to a sharp increase in unemployment andstrengthened the unofficial currency exchange market. Iran is an oilproducing country, but due to the sanction, it had no market for itsoil products which cause a sharp decrease in the amount of foreigncurrency that the country could access (Aljazeera par 3).
Althoughthe lifting of the sanctions is important to the country, it may alsoexperience high rate of inflation if there are no stable financialpolicies. For instance, the lifting of the ban will lead tounfreezing of billions of Iran’s assets held in the U.S and othercountries as well as attract more investors into the country, thusleading to high increase in the amount of currency circulating in thecountry. According to Chapra (par 5), one of the best strategies ofreducing the currency circulating in the economy is increasing theinterest rate. By increasing the interest rates, the governor will beable to encourage people to save their money as well as discourageborrowing.
Theother side of unification of the exchange rate of Iran is that it maylead to increase in inflation. This is why it is should beimplemented when the inflation level is at its lowest point. The goodside of unifying the exchange rate is that it will attract moreinvestors and multinational companies to invest in Iran. Fluctuatingexchange rate can be very costly to an international company thuslead to lose. Losses occur as the company tries to adjust its prices,payroll and general level of production.
Apple is one of the multinational companiesthat have shown interest in expanding its operations in Iran. Appleis planning to collaborate with distributors from Iran and startshipping its products in Iran (Iran Human Rights Organization par 1).
Thelifting of sanction on Iran is expected to help the country regainits economic power. However, it is important to have sound financialpolicies in the country so as to prevent the country from inflationdue to the high inflow of currency. Raising interest rate is one ofthe best strategies that the governor of central bank can use toencourage more saving and less borrowing in the country.
Aljazeera. Iran rejoins world economy withsanctions relief. 25 Jan. 2016,http://www.aljazeera.com/news/2016/01/iran-rejoins-world-economy-sanctions-lifted-160117132734049.html/.Accessed 20 August 2016.
Chapra, M. Umer. Thefuture of economics: An Islamic perspective.Kube Publishing Ltd, 2016.
Iran Human Rights Organization. Real Target ofTehran’s Demand for Apple to Open Office in Iran is US Sanctions. 2016, https://www.iranhumanrights.org/2016/07/iphone-iran-banned/Accessed 20 August 2016.