Iran’s Chief Banker Denies Currency Crisis

Iran denies challenges in obtaining foreign currency, contradicting tangible signs of shortages of vital imports in the Iranian market and a plummeting rial.

Amid the government's faltering attempts to assert control over the foreign exchange market, Mohammad-Reza Farzin, the governor of the Central Bank of Iran (CBI), said Sunday that Iran faces no obstacles in acquiring dollars or euros. He also emphasized that the government has access to recently released funds from South Korea that are on deposit in Qatari banks. However, the market realities in Iran tell a different story.

The United States agreed to unblock the funds and allow Iran to use the money for imports of non-sanctionable goods, presumably for vital needs such as food and medicine. The funds reached Qatar in September but so far there have been no reports of Iran spending it to ease shortages in the country.

Local media quote officials and businessmen almost on daily basis who speak of severe shortages of essential goods, including medicine, car parts, and food products. One pressing question remains unanswered by Iranian officials: If the country possesses the necessary foreign currency, why is it failing to import vital products, especially considering that items like food and medicine are not under US or European sanctions?

In addition to animal feed that is essential for the country’s food supply chain, shortages have also hit Iran’s pharmaceutical industry which heavily relies on the government for hard currency to import raw materials. In November, the Food and Drug Organization of Iran reported a shortage of approximately 100 types of essential drugs within the country.

The economic challenges faced by Iran, exacerbated by US oil sanctions, have strained the government's ability to allocate foreign currencies. Despite an increase in oil exports in recent months, reaching nearly six times the 2019 levels at approximately 1.5 million barrels per day, the Iranian rial is near an all-time low. With inflation soaring above 60 percent, the country is facing a complex economic situation that is directly affecting the healthcare sector and the well-being of its citizens.

With the Iranian currency rial in historic decline, the government has implemented various measures to curb devaluation, with little impact. Government-controlled currency exchange mechanisms and fixed rates ordered by the authorities have proven ineffective, with the official rate significantly lower than the open market. Limited availability of foreign currency at the lower government rate has pushed buyers toward the unofficial black market. In an attempt to keep tabs on the unofficial foreign currency exchange market, the Iranian government has also criminalized a broad spectrum of "unauthorized" transactions, including those in the virtual space. However, these measures seem to have little impact on the currency's downward spiral.

“We aim to gradually move towards making the country's exchange center the primary reference for currency exchange rates," Farzin said in a desperate attempt to foster hope.

Officials repeatedly claim to conduct business with friendly countries using local currencies such as the Chinese yuan and Russian ruble. Farzin has gone so far as to suggest replacing local currencies with the dollar and euro. “We are pursuing the substitution of local currencies in dealings with neighbors, including Iraq, Turkey, and Syria,” Farzin said.

As the government desperately tries to control the currency market, the Iranian rial tithers on the verge of another large devaluation. Since the US withdrawal from the JCPOA nuclear accord in 2018, the currency has lost 12-fold of its value. The rial is currently trading at over 500,000 to the US dollar, a stark contrast from around 250,000 rials just a year ago.

In the current climate of a possible wider conflict across multiple borders from Yemen to Iraq, Palestine to Syria, Iran continues to dedicate billions of dollars to its domestic and foreign armies, with capabilities showcased in grand displays from Iran to Lebanon.