In the past three months, the price of the dollar has increased twice and has crossed the forty thousand tomans mark. Government officials have attributed these increases to disruptive forces in the market, while fundamental factors and supply and demand in the market have also played a role in these fluctuations. Seasonal demand, intensified sanctions, and inflationary expectations are three important factors contributing to the price increases during this period.

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Importance of Exchange Rate.

Exchange rate is one of the key variables in any economy that directly affects other variables such as exports, gross domestic product, general price level, etc. In Iran, due to the monoculture economy and dependence on oil and gas exports, this dependence is even greater. The upward trend of various exchange rates in the Iranian economy indicates a decrease in the purchasing power of the rial, which has had and continues to have destructive effects on the lives of Iranians. In the past three months, with the increase in the price of the dollar, about half of the purchasing power of the people has been reduced. On the other hand, with the impact of the dollar’s appreciation on other imported goods, another wave of inflation is on the way, which will further reduce the purchasing power of the people.

28% growth.

During the early days of winter this year, the dollar rate surpassed 40,000 tomans and reached new peaks. This is the fourth time in the past four months that the increase in price has set new records for the dollar. A review of the exchange rate of the dollar against the rial in the free market (shown in the chart below) indicates a 28% increase in the three months leading up to 18 Dey month, reaching over 40,000 tomans from 37,300 tomans at the beginning of Mehr month. A review of the dollar rate since the start of the thirteenth government shows a 17,000 tomans increase in the past sixteen months; an average of 1,000 tomans per month!

A sudden decrease in the value of national currency has occurred while the country has not been involved in any wars, new sanctions, or significant political events. However, one-third of the purchasing power of the people has been lost during this time; a purchasing power that has continuously declined over the past three decades.

Reasons.

The price of the dollar depends on both demand and supply of the dollar, as well as political factors affecting the currency market.

Some experts attribute the recent increase in prices to the disappointment of the failure to revive the JCPOA and the imposition of new sanctions against Iran; a situation that seems to make it more difficult for Iran to access blocked currencies and any disruption in the supply sector affects prices. Others see the recent protests in various cities over the past four months as the reason for this increase. Under these circumstances, some individuals decide to migrate or withdraw their capital from the country, which specifically increases demand for dollars and its price.

The replacement of Iran’s oil with Russia in the markets, China’s presence in Saudi Arabia and the UAE, and the issuance of two statements about Iran, the government budget deficit, the decline in petrochemical exports due to gas cuts, and the increase in demand for buying currency in the final days of the calendar year are among the other reasons for this price increase. It is not possible to determine which of these reasons is the main cause of this price increase. In general, there are multiple short-term and long-term factors that affect the increase in the dollar price; political and economic factors that a complete analysis of them is beyond the scope of this writing.

Government’s approach.

The dollar becomes more expensive. Officials speak of invisible hands. It becomes more expensive. Markets become inflamed. People are worried. The head of the central bank is changing. Shutdowns begin. Several people are arrested for disrupting the market. Merchants lose their jobs. All types of services become more expensive than before. The president talks about collecting foreign debts. The head of the central bank is changing. Basic goods increase in price, and so on. This is a familiar scenario in Iran’s economy. It doesn’t matter which government is in power. It takes a few days for the waters to reach the mill and a more important issue to arise in the economy.

Although according to economists, the existence of price stickiness in the Iranian economy does not allow the exchange rate trend to be downward like any other commodity, it is strange that when there is a slight downward fluctuation in the exchange rate, officials attribute it to their performance and policies, but for increasing prices, they always have a hand in it. This time, too, the blame was placed on an individual in Turkey for the increase in prices. Minister of Economic Affairs and Finance, Khandozi, said in a special news interview program: “One of the drivers of the future of the dollar resides in Istanbul, which shows that we are in a special war.” Of course, Khandozi did not specify how the existence of this individual could be an indicator of a special war, but it is clear that, as in previous times, currency officials do not have the will and a specific plan to control these fluctuations. Blaming these fluctuations on individuals is also a result of their inability to control

View.

Economic experts have multiple scenarios for the future outlook of the dollar price. Some believe that with the change of the Central Bank governor and exchange rate policies, the dollar will reach a half rate; however, this group does not mention anything about the new policies of this governor. Others consider the dollar price dependent on the outcome of negotiations, and some estimate it to reach fifty thousand tomans by the end of the year based on its previous upward trend.

The reality is that, given the country’s political conditions, the dollar price cannot decrease. The volume of liquidity is increasing at an unprecedented rate and inflation has reached its highest level in the past forty-five years. The expectation of inflation among the people causes some individuals to hold onto their cash in dollars in order to preserve its value over time. On the other hand, intensified sanctions and a decrease in government oil revenues have resulted in less dollars entering the market and reducing supply.

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The repeated decrease in the value of the Iranian rial is happening while Iranians have been facing this trend for the past three decades. Multiple generations of people have experienced a life with high inflation and have always lived with the concern of rising prices; generations that have always been running to catch up with inflation but have never been able to reach it. Life under these conditions has its own characteristics that require further examination.