The dollar is breaking records: devaluation is changing the economy in Iran
The dollar exchange rate in Iran has neared the two million rials mark, signaling a severe devaluation of the national currency. This trend is destabilizing the economy, forcing businesses and households to adapt to rising costs.
The dollar exchange rate in Iran hovered this morning around 199.6 thousand tomans, very close to two million rials per dollar, after a record of more than 200 thousand tomans was recorded yesterday. Within a year, the rial has lost more than half of its value against the American currency.
The problem for the Iranian economy is much more than just the weakening of the rial on the free market, as the dollar increasingly influences price setting while wages and incomes continue to be set in rials. This debate is now being conducted openly within Iran. The veteran daily 'Ettela'at' published an unusual critique of what it calls the 'dollar-rial equation'. According to the article, prices for an increasing portion of goods and services—from raw materials, steel, and petrochemicals to vehicles, aviation, and energy—are effectively calculated in dollars, while household incomes remain set in rials. 'Expenses are in dollars and income is in rials,' the newspaper emphasized.
This is a deeper change than a normal devaluation. When an Iranian company prices a product according to its replacement cost in dollars, the currency decline quickly passes through to prices. On the other hand, wages are usually updated once a year and with a lag. The result is that further devaluation of the rial quickly rolls over into the cost of living, while household incomes do not keep up with the pace of price increases.
The exchange rate system itself also deepens the distortion. At the end of the week, the dollar for commercial transfers was sold at the official exchange center at 156.7 thousand tomans, while the rate on the free market was already approaching 200 thousand. A gap of more than 40 thousand tomans creates a great advantage for importers with access to controlled-price currency, while others are forced to buy dollars at a much more expensive rate.
Pressure on the rial comes in parallel with the contraction of trade. According to Iranian customs data, non-oil exports in the first five months of the Iranian year fell by 28.2% to about 15 billion dollars. Imports fell by 26.1% to about 17 billion dollars. Every dollar that does not enter from exports reduces the supply of foreign currency exactly when the demand for it is rising.
Iranian economist Mohammad-Mehdi Behkish warns that secondary sanctions and restrictions on maritime trade are making it difficult even for exporters to return money to Iran. According to him, land alternatives are not capable of replacing the southern ports. If the situation continues for another two or three months, he estimates that stocks of essential products will begin to erode.
The 200 thousand toman threshold is important because it illustrates how much the status of the rial has been eroded. Pedram Soltani, former vice president of the Iran Chamber of Commerce, defined the situation as adaptation: companies and households continue to operate, but they do so while reducing investments, consumption, and the standard of living. As this process deepens, it will be much harder for the Central Bank to restore the rial to its role as an anchor of the economy.
