Devalued Rial Prompts Many Iranians to Exchange Money into Dollars, Other Currencies

Iran’s currency, the rial, has lost a third of its value against the dollar in just 10 days.

That has prompted protests among shopkeepers and money changers in Tehran’s bazaar and has many Iranians frantically exchanging their rials into more stable currencies like dollars.

Marco Werman speaks with Iranian economist Ali Dadpay of Clayton State University in Georgia about what’s behind the currency’s fall and what we might expect the Iranian government to do to stave off any further devaluation.

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Marco Werman: Economic troubles are creating a headache for another President – the President of Iran. Protestors there have been voicing their anger at Mahmoud Ahmadinejad over the plummeting value of Iran’s currency. The rial’s value against the US dollar has dropped by one-third in just ten days, and in Tehran that’s caused unrest among shopkeepers and moneychangers. Many Iranians are busily trying to figure out what more stable currency to convert their rial in to. An adviser to Supreme Leader Ayatollah Ali Khamenei lays the blame at an international conspiracy, he says, against Iran’s foreign currency and gold markets. Ali Dadpay is an Iranian economist at Clayton State University in Atlanta. So first things first, Ali, you visit Iran frequently. Tell us the last time you were there and what the exchange was at the time, the exchange rate.

Ali Dadpay: I think the last time I was there it was early June. I believe it was around nineteen thousand to twenty thousand rials per dollar.

Werman: Nineteen to twenty thousand rials to the dollar. And what is it today?

Dadpay: It is, the last time I checked it reached forty thousand rials.

Werman: Alright. So by recognizing as in freefall, is the government putting itself in a politically precarious position?

Dadpay: Definitely its economic policies are being criticized severely, but I think that politically they’re not worse off than ten days ago.

Werman: What happened ten days ago that prompted this freefall?

Dadpay: I kind of think that there a sudden realization for many people that the rial was going to lose value and the dollar was going to be a good asset to have. I talked to several of my friends and they say that a of people just grabbed whatever cash they had and they ran to the currency exchange stores to change it to dollars. Iranians save in many durable products, gold coins, cars, Persian rugs, and hard currency to buy themselves insurance against inflation. So this was kind of predictable, that when they see the dollar is gaining value, so then it becomes a good asset, it’s good to invest in it, and they go buy for it. So I think it was kind of a [??] demand in these past ten days.

Werman: What do Iranians do with their dollars and their gold coins? They’re not putting them in banks. Are private banks popping up or . . .

Dadpay: Oh, deposit boxes are always a good source. A lot of Iranians kept their money in a deposit box in the banks or save them beneath a mattress the old fashion way. Like, for example, your son is getting married today, this month, and you need money, you grab the gold coins, or dollars, or any hard currency you have and exchange it into rial and you pay for that expense then. The point is that these are things that will keep their value, so your real purchasing power wouldn’t decline. That’s one of the things Iranians always did and always do and always will do. So part of this was a prophecy that kind of fulfilled itself.

Werman: What is the direct impact of the recent sanctions against Iran, specifically on oil revenue and how it’s affecting the rial?

Dadpay: Well, the thing is that Iran is still selling its oil, but the sanctions increase the transaction costs and the accessibility of those oil revenues. So if you sell a barrel of oil, before it was easy, you wire money back to Tehran, Tehran Central Bank would give it to the local banks, and the economic cycle have continued, but right now it’s difficult to bring that money inside the country and the transaction cost is increasing. And, remember, there are many large Iranian communities outside Iran and they do a lot of financial transaction with home and they are using these currency exchanges these days which means that it is more difficult for them to do it.

Werman: Is there anything Iran’s government can do or is going to do to prop up the rial?

Dadpay: Well, I think they’re going to inject some valuable dollar into the market, try to bring it back. They’re going to kind of inject a sense of reliability. I think kind of the risk increased with the tug-of-war and all of these sanction talks and everybody speaks about attacking Iran. So I think they’re gonna trying to restore confidence in people. No matter what your political affiliation, nobody like uncertainty, especially in the economy. We want to know what happens next.

Werman: Ali Dadpay is Iranian. He’s an economist and he teaches at Clayton State University in Atlanta. Professor Dadpay, thank you very much.

Dadpay: Thank you very much, Marco, for your time.

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