FOREX Transparency and What Awakes Iranian and British Each Morning
ٍٍٍٍِِEditorial: Volatile foreign exchange market (FOREX) has resulted in an unrest in Bazaar during last to weeks, that in turn has ended with demonstrations and public protests in several cities of Iran. Since last month, suddenly, the US$ value doubled in comparison with the same period in the last year. Now, both consumers and dealers are in doubt whether to buy or to sell?
At this confusion, what has happened, is tripling of the wealth of those that had stored goods at their storage, the purchasing power of the retired community and the low incomes of some people happy with receiving an annual interest of 22-24% for their saving accounts reduced to one third (by CBI order to banks) and one sixth respectively. The appear result is that, almost 60% of the Iranian community has lost its purchasing power by 80-90%, wondering some others for the need to another revolution. To advise the Government, the Editor (Mr. A. A. Saatnia) has revised the FOREX policies of the Government and CBI, because our country has no more capacity for another revolution.
A clear and a transparent FOREX market is needed as soon as possible
Written by: A. A. Saatnia
- Under the sanction’s regime, which has imposed limits on the country’s foreign exchange revenues and reserves (FOREX) and demands for it are more than the country’s reserves, keeping the exchange rates and the quotation of the state currency for traders low, there is no doubt that the health of the distribution system and the allocation of FOREX can’t be guaranteed.The current mode of managing the FOREX market is based on keeping the official rates lower than the studied true value of US$ (Rls. 42.000), supplying parts of the huge demand of industries and other trading needs on the basis of official rate, and imposing a ban on the importing of a large part of the goods. These practices in a very short time concluded shaping and the expansion of the informal currency market, the spread of smuggling of goods, the imbalance of imports, the slowness in exports, the withdrawal of capitals from the country, the possibility of spreading system corruption in the official network of supply and allocation of foreign currency, and so on. In the long run, this method can not ensure confidence in the stability and transparency of the FOREX market.
- At this situation, it seems that the Government should use more efficient and practical methods. One proposed method is that instead of insisting on the fixed rate and commitment to the rate fixation, the Government should ensure the private sector that it will solely be committed to provide FOREX for imports in line with the basic and essential needs of the country, regardless of any guaranteed FOREX rate.
- To be more clear, the Government and the CBI’s task should be fulfillment of the currency needed for essential and vital imports without imposing any fixed rate that practically will subsidize some importers and result in a huge corruption in the system (something that has already happened)
- In fact, the Government should allow the FOREX market exchange rate to be determined by the mechanism of the market by allowing the normal routine of “Supply and Demand” in the capital market. In this way, the central bank can manage currency fluctuations and prevent shocks by intervening in the market and trading with foreign exchange in the capital market.
- By adjusting the exchange rate and preventing any obligation for the central bank to meet all the needs of the currency at a public rate, the pressure on the central bank’s currency reserves will be reduced and, on the other hand, by natural increase of the exchange rate, the incentive for the return of the export currency will increase to the country’s economy.
- Exchange rate reform will also reduce import demands and will help to balancing the foreign exchange reserves and foreign exchange market stability. Along with all these benefits, the unofficial market and currency trafficking will be eliminated and the system of corruption in the supply and distribution network and parallel markets will disappear.
- Critics of this approach may mention problems such as increasing the cost of importing basic commodities and pharmaceuticals, which its solution could be the payment of the compensation of the differences between the market value and official rates only in national money and from the Government annual budget.
- To make it more clear, our specific suggestion is that the government should provide conditions that all buyers and sellers of the FOREX, will be obliged to go through the auction mechanism, and buy or sell upon an bilateral agreed rate on the stock exchange.
- Under these conditions, the government will pay subsidies only for some limited number of the basic goods and pharmaceuticals according to the reference and the official rates’ differentiation.
- The only difficulty with this suggestion is the need to designing a precise and efficient monitoring mechanism for the transparent distribution of the subsidies in Rials. The disadvantages of the proposed method are far less than the current confusing multi FOREX rates in a shaky and unstable market.
- Whereas the British people are still awaking every morning to collect their milk bottles and daily newspapers, their cultivated hands in Iran are awakening the Iranian people by a question:”what would be the US$ value today?”. This trend should be stopped by our efforts for either cutting the cultivated hands or reforming the economical situation. for me, both sounds a lovely melody!