Monday, October 15, 2012

The Forces Behind Iran’s Currency Crisis

October 11, 2012

In September and early October of 2012 the Iranian currency, rial, was in a state of free fall relative to the value of major world currencies and gold.  The government of Iran, as well as the Central of Bank of Iran (Bank Markazi), appeared to be helpless in stopping the nosedive.

The adversaries of Iran, particularly Israel and the US, were jubilant and attributed the currency crisis to the success of “crippling,” “paralyzing” or “lethal sanctions,” to use various descriptions of these sanctions by US-Israeli officials.  On September 30, 2012, Reuters quoted Israeli Finance Minister Yuval Steinitz as saying: “The sanctions on Iran in the past year jumped a level” and Iran’s economy “is not collapsing, but it is on the verge of collapse.” “The Iranians,” he went on to say, “are in great economic difficulties as a result of the sanctions.” Similarly, in a daily press briefing on October 1, 2012, US Department of State Spokesperson Victoria Nuland had the following exchange with a reporter:
QUESTION: Iran. The Iranian currency has lost about a quarter of its value in the last week alone. Is the Department pleased to see this? It seems to reflect the efficacy of the sanctions against Iran. Are you dismayed by it, or what is your view?
MS. NULAND: You’d like an adjective of choice?
QUESTION: I’d like a verb, really.
MS. NULAND: You’d like a verb, yeah. Well –
QUESTION: Delighted?
MS. NULAND: — simply to confirm what you are seeing, Arshad, our understanding is that the Iranian currency has dropped to a historic low today against the dollar in informal currency trading. This despite some frantic efforts by the Iranian Government last week to try to prop it up, rearrange the way it dealt with these issues. From our perspective, this speaks to the unrelenting and increasingly successful international pressure that we are all bringing to bear on the Iranian economy. It’s under incredible strain. Iran is increasingly cut off from the global financial system. Significant amounts of Iranian oil is also coming off the market. As you said, the currency is plummeting. And firms all over the world are refusing to do business with Iranian companies.
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