The U.S. dollar exchange rate in Iran’s free market has surpassed 2.8 million rials, while the official rate remains at around 1.6 million rials, creating a wide gap between the official and free-market rates. This surge has resulted from the Iranian regime’s continued warmongering, the continuation of sanctions, the maritime blockade, restrictions on oil exports, geopolitical tensions, declining foreign-exchange revenues, and high inflation. The consequences of a rising dollar exchange rate, like an increase in gasoline prices, have a cascading impact on all economic, social, and security issues in society.
The surge in the dollar rapidly increases production costs, particularly in import-dependent industries such as automobiles, household appliances, pharmaceuticals, and the chemical and food industries, and the sharp rise in production costs intensifies “high prices.”
Sharp Decline in the Value of the Iranian Rial Against the U.S. Dollar
Production units with limited access to preferential and government-supplied foreign currency face rising costs and declining profits. As a result, many production lines effectively shut down, adding to the number of unemployed people.
Currency instability halts or delays investment. Companies prefer to convert their liquidity into safe assets such as gold, foreign currency, and property rather than enter the investment cycle; consequently, no jobs are created.
Essential goods, medicines, electronic appliances, automobiles, and many consumer items that depend on foreign currency reach people at a price of 2.8 million rials amid the regime’s cycle of theft and corruption.
People turn to precautionary purchases and refrain from spending their money in the market, instead converting it into gold and durable goods. As a result, buying and selling in the market falls into recession and comes to a halt.
Pricing based on the floating free-market dollar rate forces sellers to refrain from selling because goods they sell in the morning may have to be replenished that evening at several times the price. Therefore, they prefer to close their shops and hold on to the goods they already have.
The gold, coin, housing, and automobile markets usually rise in tandem with, or faster than, the dollar and become safe havens for capital. This diverts liquidity away from the real economy.
The Spread of Smuggling and Rent-Seeking
The gap between the official and free-market rates intensifies rent-seeking, corruption, and the smuggling of goods.
Government employees and people on fixed incomes, particularly retirees, suffer severe losses from the wages they receive and lose the value of their work and purchasing power. In other words, the real value of the same fixed monthly salary suddenly declines significantly. The middle and lower classes suffer the most; food, housing, and healthcare costs account for a larger share of their income, resulting in a sharp increase in poverty and inequality.
The Iranian regime’s Central Bank announced that it would inject $2 billion in foreign currency into the market. However, due to corruption and exchange offices affiliated with the regime itself, this money also entered the cycle of government corruption. As a result, it had no effect on lowering the dollar exchange rate and, in practice, was able to reduce the dollar price only slightly for one day.
