In the past thirty years, various governments in the Islamic Republic have utilized a recognized and familiar policy to address their economic problems; a policy that has always burdened the people with its negative consequences.

The conditions of society are such that due to certain undesirable actions, we have witnessed dissatisfaction in our society, which has manifested itself in the form of protests over the past few months. Over the past four decades, the value of the US dollar against the Iranian national currency has increased by two thousand and seven hundred times, and the rial has taken its place among the weakest currencies in the world.

With the extensive efforts of civil society representatives, social networks, media, and international institutions, dimensions of deep-rooted corruption in the Islamic Republic of Iran have been exposed and a significant portion of public opinion has become familiar with various forms of rent-seeking in the authoritarian rule and the massive state-affiliated and quasi-state-owned production enterprises.

Despite this, some of the main sources of corruption in Iran’s political and economic system remain hidden or their actions are still shrouded in ambiguity for a wide range of public opinions.

Various financial scandals, including “missing towers”, bribery, and the escape of judges and officials, money transfers to bypass sanctions or expose various types of “currency and coin sultans”, and car are often among the most popular topics published in the media and social networks.

Instead, the corruption arising from the normal and daily activities of some of the official institutions of the Islamic Republic remain hidden from view; although these institutions provide a much wider ground for plundering than the subject of controversial cases, and even compared to the defendants in these cases, they cause much heavier and more destructive damages to the interests of the country.

The Central Bank of the Islamic Republic is one of the most influential institutions in the country due to its performance and is one of the main sources of rent-seeking in the Islamic Republic. By neglecting its main duties, it continues to quietly plunder hundreds of billions of dollars from the country’s foreign resources.

This is the situation that the Central Bank of the Islamic Republic of Iran has been caught in and is being pressured by the leadership of the system, government, and even the Islamic Consultative Assembly from a very weak position. If inflation rates in Iran have been so high in recent decades and the national currency has become so worthless, one of the main reasons for this has been the lack of independence of the central bank.

Central Bank Supervision

The Central Bank of the Islamic Republic, with its responsibility for the most important tool in implementing an inflationary policy, has become the main cause of the severe economic difficulties that have engulfed a large portion of the Iranian population and pushed them below the poverty line. At the same time, due to this responsibility, the management of the foreign exchange market by the Central Bank has been carried out in such a way that hundreds of billions of dollars in foreign resources have been looted instead of being used for the country’s development.

The management of the country’s currency market by the central bank is the most important factor in creating this large plunder. The monetary authorities of the Islamic Republic claim that Iran’s exchange rate policy, like many other countries, relies on a “managed float system.” “Float” means that the exchange rate is not fixed and fluctuates up and down in relation to economic variables (foreign trade, growth rate, inflation, etc.). The concept of “managed” also means that the fluctuations in the exchange rate are controlled by the central bank, and this institution, taking into account other considerations, both economic and political, uses the levers at its disposal to influence these fluctuations without questioning their reality or denying their necessity.

Among the three objectives that the country’s monetary and banking law considers as the main components of the “mission of the central bank”, maintaining the stability of the national currency holds a special position. It is precisely in this regard that the central bank has faced a historic failure and has lost its credibility and authority.

This policy is not inherently open to criticism. In a country like Iran, which suffers from high inflation rates, a “managed floating system” requires the adjustment of the national currency exchange rate based on the difference between domestic and foreign inflation rates, but the extent of this adjustment by the central bank depends on economic considerations and broader national interests.

For example, if the inflation rate in Iran is twenty percent and in the dollar zone is two percent, the central bank must allow the exchange rate of the rial against the US greenback to decrease based on this difference. However, at the same time, the same institution must consider the various aspects and the timeframe of this decrease and its implementation.

In practice, however, the “managed floating system” has had a different fate in the Islamic Republic and has turned into a constant effort to artificially stabilize the exchange rate; in fact, over the past four decades, the Central Bank of the Islamic Republic has continuously injected oil dollars into the foreign exchange market in order to support the value of the rial and prevent an increase in the exchange rate.

It is evident that this policy cannot continue easily and peacefully for a long period of time; sooner or later, a time will come when due to lack of necessary resources, currency devaluation becomes impossible, currency control is lost, and the country’s economy and businesses tremble under the pressure of this shock. This destructive policy has happened repeatedly over the past four decades and continues to this day.

It is necessary to explain that many countries, in specific cases and to support their national currency, offer foreign currencies in the market. However, this initiative has a temporary and short-term aspect in countries that adhere to economic laws, and the policy of injecting currency is stopped immediately after achieving the set goals, so that the market returns to its natural mechanisms.

In the Islamic Republic, artificial stabilization of the exchange rate is achieved through injecting dollars earned from oil exports, with the main goal of preventing a surge in the exchange rate and keeping imported goods, especially expensive food items, from becoming more expensive and causing inflation to rise.

The experience of the past forty years in Iran and also the global experience teaches us that artificial and long-term stabilization of exchange rates is impossible. Sooner or later, the ladle will hit the bottom of the pot, the policy based on currency devaluation will fail, the currency spring will be released and the dollar rate will suddenly reveal its reality with sharp and sudden jumps; in fact, this destructive policy not only burns hundreds of billions of dollars of the country’s foreign resources and puts the national economy under pressure from repeated currency shocks, but also provides a very favorable ground for corruption and rent-seeking. (2)

Corruption in the service of embezzlement.

In the public session of the Islamic Consultative Assembly on June 3, 2021, Abdolnaser Hemati, the former head of the Central Bank, raised the curtain and explained to the representatives a part of the mechanisms of looting foreign currency resources in the service of rent-seekers. In this session, Hemati told the Iranian parliament that the management of the currency market in the Islamic Republic has led to a massive flight of capital from the country and the purchase of assets abroad. These are his exact words: “These issues that are being raised are not just complaints about past officials, but our execution system has fallen in such a way that we had to inject money into the currency market to maintain the exchange rate. Therefore, we have injected 280 billion dollars into the currency market in the past fifteen years (which means an average of 18 billion dollars per year) to control the exchange rate. So it is natural that a lot of this money has left the country

For millions of Iranians who struggle in extreme poverty, the confessions of the former head of the Central Bank of the Islamic Republic regarding the fate of the country’s foreign assets are painfully distressing. Let’s review Hemmati’s statements:

One) Over the past fifteen years, the Central Bank of the Islamic Republic of Iran has injected two hundred and eighty billion dollars into the market to stabilize the exchange rate; equivalent to nearly eighteen billion and seven hundred million dollars per year and fifty-one million dollars per day.

The purpose of injecting currency was to prevent the dollar exchange rate from reaching its natural price. The natural price means that the exchange rate of the dollar in Iran is determined based on macroeconomic data (growth rate, inflation rate, foreign trade, etc.); in fact, the central bank has injected 280 billion dollars into the currency market over the past fifteen years to artificially keep the price of the American banknotes lower than it should be.

3) This policy has been effective in the short term and has kept the exchange rate of the dollar in the Iranian currency market around two or three thousand and four thousand tomans for about one or two years. During these periods of artificially stabilizing the exchange rate (by injecting fifty-one million dollars daily into the market), some opportunists have taken advantage and invested in dollars that have been artificially kept cheap, outside the country.

4) We emphasize to investigate the depth of the tragedy mentioned by Abdolnasser Hemmati. He refers to those who have deposited their rial assets in banks at a 25% interest rate; then they convert this profit, which is sky-high for multi-billion rial deposits, into foreign currency, specifically dollars worth three or four thousand tomans, and use it to pay installments for the houses they have purchased in Canada. In other words, as Hemmati says, a country as devastated as Iran has paid subsidies to Iranian buyers to purchase homes in Canada.

Five) The very important point is that despite injecting two hundred and eighty billion dollars into the currency market over the past fifteen years, the dollar exchange rate has continued to rise and today it has reached over twenty thousand tomans.

“What has been mentioned in this brief is a manifestation of destructive policies that have plunged Iranians into a dark day. The head of the Central Bank, in his speech to the parliament, refers to injecting 280 billion dollars into the Iranian currency market over the past fifteen years to support the failing rial. The question is, how many hundreds of billions of dollars have been wasted or pocketed by rent-seekers during the past forty-four years of this futile cycle?”

But in the public statements of Abdolnaser Hemmati in the parliament, there is a major flaw. He speaks in a way that suggests injecting currency into the market was in service of supporting the rial in the past and will not be repeated. They know well that this policy is still ongoing and considering the current economic and political situation of the country, without injecting currency into the market by the central bank, the dollar will reach even higher peaks in Iran.

Absolute rule for embezzlement.

If we take a look at the economic conditions of society in the past six months, about fifty percent of the value of the national currency has fallen; so that today the price of the dollar is forty thousand tomans, which is a disaster for the country’s economy and people. Today, society has demands that are in line with the realization of these rights and demands, and on the other hand, the government and the ruling establishment are pursuing their own special approach, which is to maintain the current situation and protect the interests of mafia groups and organizations. Although recent protests have been a multifaceted issue and the result of accumulated problems over the past four decades, today the most important thing that has caused people’s dissatisfaction is the economic and living conditions that were supposed to improve with government actions, but not only did not improve, but the conditions have become even more difficult than before; therefore, it seems that if the current trend continues, the economic conditions will become even more difficult and will have an

The government has no offer.

In the years following the implementation of international sanctions against Iran, the value of the dollar has increased day by day. This American currency has continued its upward trend and has reached a point where it has set alarming records. The thirteenth government, which has so far been unsuccessful in preventing the rise of the exchange rate, has resorted to changing the head of the central bank; a move that was already evident since 29 December 2022. This is not a well-thought-out solution and can only temporarily alleviate this chronic problem.

In recent days, the dollar has retreated from its peak prices; although Mohammad Reza Farzin tried to control the exchange rate by setting a fixed rate of 28.5 thousand tomans, this solution did not prove to be effective and on the tenth day, which is the middle of the 18th of Dey month, the dollar was traded at a rate of over 40.5 thousand tomans in the free market.

Experience has shown that neither the dollar of Jahangir nor the dollar of Farzin have the ability and power to confront the strong current of increasing exchange rates, and the American banknotes continue to lead the way to new heights.

The only function of the government in the current situation has been changing the management of the central bank; a policy that has not been able to have any impact on stabilizing the exchange rate and even if there is any change, it is very short-term, because the main factors that have caused the increase in the exchange rate are still present.

Some individuals close to the government, including the former head of the Central Bank, attribute the fluctuations in the dollar exchange rate to their own “riots” and external factors; while in reality, the fluctuations in the dollar exchange rate have nothing to do with foreign activities, channels, etc. These statements are essentially deceitful words and the main reason for the crisis is budget deficits and increased liquidity.

This is while if the main factors are addressed and problems are solved, the exchange rate will likely change; otherwise, the foreign exchange market situation may even worsen. Important and influential issues on the foreign exchange market trend include having high liquidity and so-called money printing in society through various methods, without any source for this money. They print money in situations where they have a budget deficit and use central bank credits to cover the deficit. This increase in liquidity leads to inflation and an increase in all prices, including the dollar.

The unstable economic and political conditions that have arisen have caused some wealthy and powerful individuals to convert their money into foreign currency, either inside or outside the country, and hold onto it; a method that has been adopted due to the continuous decrease in national currency and increase in the exchange rate of the dollar, turning it into a way of investment. Under these circumstances, a false demand for foreign currency arises and it may result in capital flight or conversion of assets from the national currency to foreign currency. In times of political and economic crisis, this is inevitable.

Financial liquidity is also a result of budget deficits, and they are currently trying to cover the deficit by issuing new money. Therefore, as long as there are budget deficits and political and economic crises, this story will continue.

Changing individuals will have no effect on this issue and policies must change to solve the problem. A balanced and planned budget is necessary. Currently, neither the seventh plan has been set nor the budget for the next year has been fully presented, and there is no way to compensate for the budget deficit.

It doesn’t matter which government is in power and these methods are a continuation of the same old policies and are inevitably subject to the conditions of Iran’s foreign and domestic strategies. This situation has always existed in the past three months. This situation has been added to previous crises, but the most important crisis we are facing these days is the more than ten-year sanctions of the United States against Iran. It should be noted that in addition to the United States, all countries that work with the United States have also seen their own interests in imposing sanctions on Iran. (5)

Government’s lack of planning in the foreign exchange market

During the presidency of Ibrahim Raisi, the exchange rate of the dollar has increased by more than 14,000 tomans. Each coin has also nearly doubled in value. A member of parliament admitted that the government has abandoned the market and is unjustly blaming the protests for the fall of the rial.

After receiving the remarks and promises of the Minister of Economy and the head of the Central Bank regarding controlling the foreign exchange market, the Islamic Consultative Assembly evaluated the “Government’s Foreign Exchange Policies and Actions” on Monday morning, the fourth of Dey. Ehsan Khandouzi, the Minister of Economy of the thirteenth government, who is currently facing impeachment whispers in the corridors of the Assembly, considered the protests as a significant factor in what he called “instability in the foreign exchange market.” He said, “The enemies are seeking to transfer the unrest to the banks and the foreign exchange market of the country.” Previously, the head of the Central Bank had also attributed the recent protests to the increase in the dollar exchange rate.

The Minister of Economy described the fluctuations in the currency market as “the path of war in economic variables” and said, “All foreign income of exporters and our resources must be returned and placed in the hands of the central bank in a centralized manner for unified command.” Khanduzi claimed, “By approving the plan for taxing speculation and capital gains, we will put an end to the era of speculation and gambling in the currency market.”

The words of the Minister of Economy of the Thirteenth Government convinced few representatives. Rouhollah Izadkhah, representative of Tehran in the Islamic Consultative Assembly, said: “Do not attribute this increase to recent disturbances and events. Your orders are wrong. The demand for converting Iranian currency into foreign currency has been present in the country for thirty years. Do not disregard the realities.”

Notes:

1- Government profit from increase in exchange rate, Eco Iran website, 25 Azar 1401.

2- Evaluation of Government Interventions in the Foreign Exchange Market with a Focus on Real Exchange Rate, Strategic Research Center, 19 Bahman 1399.

The most critical day of the parliament about the government coincided with the record-breaking of the dollar, online confidence, 13 Khordad month, 1400.

4- The dollar reached forty thousand tomans; the government does not have control over the currency market! Radio Zamaneh, 4 Dey month 1401.

5- Sanctions alongside carelessness, Kheradnews, 5 Dey month 1401.

“Provocations are descriptive terms that government officials and media use to describe protests.”