What You Should Know About Iran's Weakening Currency

The Iranian rial has hit a historic low against the dollar, adding to the perception that the country is in the throes of a deepening economic crisis. But the figures that are most concerning for Iranian economic policymakers (there are many) are rarely the most dramatic or those that make the headlines. The rollercoaster ride that has taken the rial to a historic low of IRR 215,000 to the dollar does not tell us as much about the health of the Iranian economy as is widely assumed.

Reporting on Iran’s currency focuses on the azad or free market rate, which is the price of purchasing a single, physical dollar bill at an exchange bureau in Tehran. The buying and selling of eskenas, or hard currency, represents a small proportion of the overall foreign exchange market in Iran, likely accounting for less than 20 percent of all foreign exchange transactions. 

There is also a fixed subsidized rate of IRR 42,000 for each dollar. This rate is made available to importers of critical goods such as food and pharmaceutical products, but the Iranian government has been seeking to shrink the number of goods eligible to be imported at this rate.

The most important rate, which is rarely cited in reporting on Iran’s currency woes, is the rate available in the NIMA exchange, a centralized electronic system established by the Central Bank of Iran in 2018 to streamline the purchase and sale of foreign exchange among Iranian companies. The NIMA rate has hit just over IRR 168,000 in the past week, also a historic low.

The NIMA rate has also risen in recent months, reflecting the reported shortages of foreign exchange available in the market due to trade disruptions brought-on by COVID-19 as well as the underlying difficulties facing Iranian banks, and particularly the Central Bank of Iran, in accessing foreign exchange held in accounts at foreign financial institutions.

After approaching convergence in the summer of 2019, the spread between the free market and NIMA rates has widened considerably, meaning that the devaluation of the rial in the free market is not the best indicator of the strength of the rial, nor an accurate reflection of concerns around inflation.

Since the NIMA exchange began operating in earnest in the last quarter of 2019, inflation, as measured by the consumer price index, has tracked most closely the NIMA rate and not the free market rate. This is to be expected. The NIMA rate reflects the price at which most foreign currency is bought and sold in Iran and crucially it reflects the price at which Iranian companies purchase foreign exchange in order to pay for imported goods.

On one hand, the devaluation of the rial over the last decade has benefited Iranian exporters, making their goods more attractive to foreign buyers. The more liberal approach to foreign exchange policy has helped Iran grow its non-oil exports—a lifeline for the economy as oil exports are constrained by sanctions.

But on the other hand, the more liberal approach to the exchange rate has had an impact on the price of imported goods, whether those are finished goods or raw materials and parts used in the manufacturing of finished goods in Iran. This relationship is most clear when comparing the changes in the NIMA rate with the price index for consumer durables, a category of goods more likely to have imported parts content. When the NIMA rate increases, so does the price of durable goods, contributing to the total cost of the consumer basket.

Often, reports about the plunging value of the rial suggest that the appreciation of the dollar in the free market reflects the erosion of Iranian purchasing power. But the relationship between the rial’s free market rate and inflation is limited. Unlike in other economies that have experienced currency crises, such as Lebanon, Iran’s economy is not dollarized. When ordinary Iranians exchange rials for physical dollars, they are acquiring an asset that they will most likely exchange back into rials at some future point, preserving the value of their savings in the process. Iranians purchase dollars for the same reason they purchase gold, real estate, and even used cars—they are seeking a hedge against inflation. Hard currency dollar appreciation does not depress the value of the rial as a medium of exchange.   

However, the free market rate could be a signal for price makers about expectations of future inflation, and therefore may influence producers and retailers to increase prices. Moreover, the free market rate may also have an impact on the price of real estate, which is also used as a hedge against inflation. In both instances, the devaluation of the rial in the free market could contribute to higher prices for Iranian households.

But when considering that the free market represents a small proportion of the overall foreign exchange market in Iran, fluctuations in the free market rate are perhaps best understood as a response to inflation, among other economic indicators. In fact, at a time when the central bank is pumping historic amounts of liquidity into the Iranian economy, the conversion of rials into dollars may actually serve to absorb some liquidity. 

This is perhaps the other parallel that can be drawn between the purchase of dollars and assets such as stocks and gold—the currency free market has some of the hallmarks of a bubble, particularly as the spread with the rates available on the NIMA exchange widen. The devaluation of the rial that can be observed in the NIMA exchange, which is equivalent to the rial losing about a third of its value since Iran reported its first two cases of COVID-19 in February, lags behind the devaluation in the free market exchanges, which has seen the rial lose half of its value in the same period.

Given the media attention both inside and outside of Iran to the rial’s free market fluctuations, it is perhaps no surprise that psychological factors may be responsible for the recent devaluation episode. Given that the NIMA rate is a better indicator of the vulnerability of the Iranian economy to inflation, both when considering how much foreign exchange is available in the market, but also when considering changes in the money supply in Iran, it is notable that the free market rate has deteriorated more sharply.

This divergence, which the central bank had worked hard to limit, is beneficial to a wide range of actors within Iran’s financial system, including those engaged in corruption. The arbitrage between the two rates incentivizes commercial enterprises that earn foreign exchange revenue to circumvent the NIMA system. The panic buying of dollars by working class Iranians benefits wealthy Iranians who are more likely to maintain a large portion of their savings in hard currency, or who can bring hard currency back to the country from abroad. Ironically, in the short term, the devaluation of the rial has probably created more wealth than it has destroyed 

Nonetheless, Iranians should be worried about inflation. The COVID-19 crisis has widened Iran’s fiscal deficit and also given rise to balance of payments challenges. There is growing concern that inflation will rise in the coming months as the central bank prints money.

Iran’s central bank governor, Abdolnasser Hemmati, has sought to calm nerves by arguing that increased liquidity is a “structural phenomenon” in the Iranian economy. His statements have yet to reduce demand for dollars, which has risen in anticipation of increased inflation. Nonetheless, the increased demand does not itself mean that Iran is presently experiencing or is set to experience the scenarios of “hyperinflation” that have been long predicted. Rather, those purchasing dollars in the free market are betting that the policymakers will fail to keep inflation under control as it edges towards 30 percent.

Photo: IRNA

Confronting Failure, Iran Government Mulls New Currency Policy

Despite mounting evidence that the Iranian government’s policy of allocating subsidized foreign currency for the importation of essential goods has failed, the Rouhani administration has signaled that it plans to maintain the policy for at least another year. But lawmakers and Rouhani’s own cabinet ministers may force the administration to change course.

On March 2, Iran’s parliament approved the allocation of USD 14 billion in oil export revenues for the import of essential goods, including food and medicine, during the upcoming Iranian year (beginning March 20). In doing so, MPs gave the green light for the Rouhani administration to continue to make foreign exchange available to importers of essential goods at the subsidized rate of IRR 42,000 to the dollar.

However, lawmakers also encouraged the government to consider an alternative approach that would require essential goods importers to purchase foreign exchange at the IRR 90,000 rate available on the centralized NIMA marketplace. The government would then redirect the savings from the elimination of the currency subsidy towards programs that directly assist Iranian consumers and manufacturers.

Despite the nudge from parliament to consider a new approach, it appears that the administration is intent on maintaining the subsidy for at least another year. The head of the Management and Planning Organization, Mohammad Baqer Nobakht, confirmed this to be the administration’s position in an interview just prior to the parliamentary vote.

The Rouhani government “unified” the country’s dual foreign exchange rates at IRR 42,000 to the dollar in early April as the rial hit new lows due to political uncertainty surrounding Iran’s nuclear deal and the possible reimposition of sanctions by the United States. The foreign exchange rates diverged again shortly thereafter, but the Rouhani administration has persisted in using the “unified” fixed rate for the importation of essential goods.

Rouhani recently claimed that he personally disagreed with the fixed rate when it was first proposed and only consented to rate unification after dozens of top economists backed the move. His administration has since maintained that the allocation of subsidized foreign exchange continues to be the best policy to stabilize prices of essential goods.

Meanwhile, high levels of inflation have dimmed prospects for Iran’s middle and lower classes. The Iranian public has felt the pressure of price hikes, and essential goods have not been spared, despite Rouhani promising otherwise on national television.

Beyond the lived experience of Iranians, new research has also cast doubt on the effectiveness of subsidization. On February 22, the Parliament Research Center published its findings of the government subsidized currency allocation policy. According to the PRC, the price of essential goods as a category increased by 42 percent during the first three quarters of the current Iranian year that ended on December 21.

By comparison, the price of imported goods not eligible for the subsidized rate increased 73 percent in the same period. However, the consumer price index increased by nearly 40 percent, meaning that the increase in the price of essential goods still outpaced general inflation by a significant margin. The question for policymakers is whether this minimal impact on the price of essential imports is worth the many adverse side effects for the wider economy.

At time when Iran’s foreign exchange revenues are being squeezed by  the Trump administration’s “maximum pressure” policy, the Iranian government cannot afford to misallocate USD 14 billion in oil revenue to a subsidization program that may serve to increase corruption and rent-seeking.

Iran’s central bank governor Abdolnasser Hemmati also admitted as much in a frank statement. “In effect, allocating subsidized currency to essential goods has failed to prevent their price hikes in the medium term due to the nature of market in the economy and the weakness of the distribution and supervision systems,” he wrote in a March 9 Instagram post. “Therefore, in most cases the subsidies have gradually moved away from consumers and benefited importers.” Hemmati signaled that a change in the policy may be in order by stating the government will “make the best decision.”

Economy minister Farhad Dejpasand later echoed Hemmati’s view, stating that “The government is currently studying several policies, and we definitely will adopt an approach to minimize the pressure on the poorest sections of society.

“Based on competitive open market principles, any fixed rates that diverge from the open market rate, such as the subsidized IRR 42,000 dollar exchange rate, are a mistake,” Mohammad Mahidashti, a macroeconomic analyst currently serving as an advisor at Iran’s Ministry of Economic Affairs and Finance told Bourse & Bazaar.

“There is simply no positive aspect in this subsidized currency allocation by the government, perhaps save for giving it a justification and a populist slogan to show that the administration is trying to decrease prices of essential goods,” he said.

Mahidashti believes the way forward is for the government to cut its losses as soon as possible by eliminating the subsidized rate and moving toward true rate unification, which he considers both doable and absolutely necessary.

Indeed, the PRC report also called on the Rouhani administration to either fully eliminate subsidized currency allocation or significantly trim the list of essential goods eligible to receive cheap currency. Even in the event of choosing the second route, the parliamentary think-tank said the subsidized rate must be higher and the IRR 42,000 rate is no longer justifiable.

Iran’s private sector, which has for years called for true rate unification would surely embrace such a move. Shortly after Hemmati’s admission of the failure of the subsidized foreign exchange policy, deputy president of the Iran Chamber of Commerce Pedram Soltani welcomed the announcement as a sign that things may be changing. He tweeted, “Subsidized currency is the source of rent and misuse. Let’s stop the flow!”

Photo Credit: IRNA

Iran's Currency Crisis Is Decades in the Making

The deliberate devaluation of the national currency is a staple of modern monetary policy. Its thoughtful application has led to decades of economic growth for export-oriented countries such as China. The Iranian government has allowed the rial to grow consistently weaker for decades. Why hasn’t the country seen the same economic windfall?

Economists answer this question with caution. The consensus view is that the most important factor in the success of the policy of devaluation is a country’s foreign trade balance. The policy works if a country is export-oriented, manufacturing globally competitive tradable goods. But being an oil-oriented economy and suffering from negative trade balance, as in the case of Iran, hinders the economy.

Emboldened by oil revenues paid in foreign exchange, subsequent administrations have sought to preserve the purchasing power of rial for the consumption of imported goods and not for domestically made products. In fact, the dominant policy in the last 40 years subsidized foreign commodity consumers, favoring importers, affluent Iranians enjoying dual citizenship, and even smugglers—groups whose spending depends on foreign exchange. These policies have letdown domestic manufacturers and ordinary Iranians, now victimized by a monetary policy that has created havoc across the economy, in a repeat of the currency crises of 1990s the 2010s

Experts have continued to recommend that the government allow market forces to determine equilibrium forex rates. If the monetary regulator does decide to intervene in supply and demand of hard currency, the real forex rate should be specified at a higher level with the constant adjustment of the nominal rate as per domestic and foreign inflation differentials. This approach is thought to incentivize exports and enhance import substitution , which is believed to ultimately contribute to economic development in Iran.

Exchange rates are likely to spike if government or domestic economic players bear large foreign exchange liabilities on their books at a time when the value of the rial drops or access to credit is limited. In such a scenario, the enhancement of exports and reduction of imports can balance trade payments. But once higher forex rate adjustment is not capable of exerting an acceptable amount of impact on export growth and import cuts, the current account balance may not remain sufficiently positive to help government or manufacturers meet their foreign currency debts and obligations.

This vicious cycle is made worse by groups with vested interests, which exert their pressure against the government reforms. Both quantitative and qualitative evidence suggest that the commercial and political interest groups play a major role in shaping the regime of exchange rates in Iran. Actors involved in international trade and business are more inclined to advocate a fixed exchange rate policy. These economic agents, regardless of domestic macroeconomic climate, seek predictability in currency prices in order to protect their own interests. On the other hand, there are importers and non-tradable commodity manufacturers prefer a floating exchange rate system, which allows them to benefit tremendously from rial devaluations.

Generally speaking, there are two mechanisms available to regulators to manage currency market volatility—endogenous management and exogenous management. The latter approach has seen the management of currency crises with the use of central bank forex reserves. But this mechanism, which is reactive and open to manipulation by interest groups, has never been able to bring lasting results.

Iranian officials must recognize endogenous management as the only tool at hand to minimize the incentives of the currency speculators, and push excess liquidity to other asset classes like the housing market or capital market. The Tehran Stock Exchange is already benefiting hugely from the capital exodus from the banking system due to rising inflation rate. Additionally, the housing market can absorb the liquidity if the proper measures are undertaken to encourage investment in the sector. Such an intervention could calm the currency crisis in the short-term and help protect job growth now that unemployment is set to rise.

As is evident today, failure to regulate foreign exchange markets can bring the whole economy to a standstill and raise real and expected inflation. When the exchange rate rises hand-in-hand with inflation, Iran’s economy sees stagflation, resulting in a severe loss of total national income. These were the dynamics when Iran experienced its first currency crisis in 1994-95.

Furthermore, the depreciation of the rial negatively impacts the economy given that foreign exchange revenues are considered to be essential resource for the importation of intermediate and capital goods. Under such circumstances, if exchange rates rise, the cost of manufacturing and, in turn, inflation stands to rise as well. Consequently, investment levels are decreasing. This will depress total demand leading to reduced business activities and a jump in consumer prices. This more dramatic scenario, which is taking root now, is similar to that faced by Iranians at the end of Ahmadinejad presidency in 2012-2013. The outcome this time round is hard to predict. 

Photo Credit: Depositphoto

Iran's Currency Crisis is a Supply-Side Story

On Monday, the Iranian rial sank to a historic low. But those Iranians who scrambled to convert their rials into dollars found it difficult to do so—as they have for months. Since April, reports on the accelerating crisis have consistently noted a lack of hard currency available at Iran’s exchange bureaus.

This important detail of the current crisis has gone largely unexamined in foreign reportage. While the determinants for demand for foreign exchange—widespread anxiety about the state of the economy and the return of sanctions—are well understood, the second determinant of market prices—foreign exchange supply—remains subject to mere passing mention. This is a mistake. Iran’s currency crisis is a supply-side story.

In the absence of data, it is hard to show quantitatively that the currency crisis is primarily a supply-side phenomenon, but there are numerous factors that make this likely. Iran has been prevented from repatriating its foreign exchange reserves held in Europe. Its regional neighbors have vowed to cease using the US dollar to conduct bilateral trade. Illicit networks that have long funneled US currency to the black market have been interrupted. Most tellingly, the Trump administration is being urged by its close advisors to “quickly exacerbate the regime’s currency crisis” by interfering with Iran’s foreign exchange supply.

While the government has no doubt failed to inspire confidence in its economic leadership, contributing to the ouster of both the central bank governor and economy minister, it is unlikely that expectations of rising inflation and economic recession alone would create so dramatic a rush to the safe-haven of the dollar.

In an interview with Euronews, economist Saeed Laylaz, offers more detail on how the historic exchange rate principally reflects a shortage phenomenon. “You might imagine that the dollar price of 12,000 or 13,000 toman accounts for 100 percent of the currency market, when in actuality we have various companies completing imports with a dollar at a price less than 8,000 toman in the secondary market,” Laylaz explains. In his assessment, while the 8,000 toman rate accounts for 80 percent of transactions on the secondary market, “the dollar bill is 12,000 toman.” Greenbacks are physically scarce and this accounts for the historic prices making headlines worldwide. 

For companies with access to dollars at 8,000 toman and especially for those enterprises with access to dollars at the government rate of 4,200 toman, the price of the physical dollar bill offers an immense opportunity for arbitrage. The temptation for companies to divert a portion of their foreign exchange into the most lucrative and speculative parts of the free market has proven hard to ignore. One example can be seen in the petrochemical sector, where major companies, including state-owned enterprises, have been slow to make their foreign exchange available for sale on the secondary market through NIMA, the country’s centralized marketplace, despite instructions from the central bank and oil ministry.

Economist Hossein Raghfar described these companies as “accountable to no one” when it became apparent that they may have sought to sell their currency at the free market rate, rather than at the lower official exchange rate, despite the government instruction. Nonetheless, in the assessment of Masoud Nili, the government's chief economic advisor, this kind of arbitrage activity is a symptom of the rising premium and not its root cause. Nili comes close to acknowledging that the government's focus on profiteering in the early months of the crisis was an attempt to deflect from more consequential interruptions in foreign exchange supply. 

It is likely that the primary cause of the currency crisis is a severe shortage in foreign exchange. This places the Rouhani administration in an especially difficult bind. It might seem straightforward that increasing the foreign exchange supply would help stabilize the rial and prevent the speculation enabled by the extreme scarcity of the dollar and euro. Mohammad Reza Farzanegan looks at some of these issues in his study of illegal trade in Iran from 1970 to 2002. He confirms that easing the ability of actors to “acquire more subsidized exchange” will lead to some part of the currency to be “sold in the black market of foreign exchange.” The actions of the petrochemical companies offer a perfect case study. 

This is especially important at a time when the incentives for illegal import activity are increasing. Farzanegan writes that “whenever state intervention drives a wedge between international and domestic prices… there is an incentive for underground activities.” In subsequent research he has shown convincingly that the “wedge between international and domestic prices” can be applied externally—sanctions spur “underground activities.” In this way, making foreign exchange more readily available may stabilize the exchange rate, but it can serve to accelerate rent-seeking and smuggling, the agents of which have historically used their trading networks to take their profits offshore.

The specter of capital flight looms large over the administration. In a recent address, newly appointed central bank governor Ehsan Hemmati announced that the country would not use oil revenues in order to prop-up the currency. In a likely related move, Iran has decided not to seek to transfer EUR 300 million in cash from its funds in Germany to Iran to increase foreign exchange supply. A report in Shargh, a leading newspaper, suggests that the government had decided not to intervene to support the rial in order to prevent capital flight by allowing the dollar to become a scarce and expensive "luxury item." 

A recent report by Iran’s Parliamentary Research Center estimated that capital flight in the year leading up to March 20 amounted to USD 13 billion dollars. By comparison, during the Ahmadinejad administration, that figure was possibly ten times higher, with reports suggesting that between USD 100-200 billion was taken out of the economy as sanctions tightened. Between 2005-2012 Iran generated USD 639 billion in oil revenues, with falling exports offset to a degree by historic oil prices. Yet Ahmadinejad left office with Iran’s foreign exchange reserves at only around USD 50 billion higher than when he entered.

To prevent capital flight on that order, the Rouhani administration can prioritize rate convergence and stabilization over interventions that would significantly lower the price of the dollar. The Central Bank of Iran has sought to "bridge" the two sides of the market that Laylaz describes, announcing that "authorized exchanges can sell foreign currency bought from exporters and other sources registered through the SANA system, in the form of banknotes in the open market." The banknotes would be purchasable upon request from the central bank. In this way, any increase in the supply of banknotes at the upper end of the market will be associated with reduced supply at the lower end, helping push the rate to convergence, even if the rate remains historically high. A high exchange rate may be a necessary evil in order to protect fragile economic growth.

In a study of the Iran’s economy from 1981-2012, Hoda Zobeiri, Narges Roshan and Milad Shahrazi of the University of Mazandaran identify a strong negative relationship between capital flight and economic growth in Iran. By trapping capital at home, even devaluing rials, the Rouhani administration might hope that wealth is committed domestically towards investments and capital formation that can sustain growth. Some evidence that this may be taking place can be seen in the fact that the Tehran Stock Exchange is on a historic bull run.

Laylaz and others have criticized the administration for “adding fuel to the fire of the market” by failing to curb the demand for foreign currency. But by focusing on demand, critics will miss important supply-side phenomena, such as how the currency shortage may slow the capital flight that has historically preceded the reimposition of sanctions. Whether or not this is an intentional outcome of the Rouhani administration’s policy, that the inability or unwillingness to increase foreign exchange supply may be consistent with attempts to limit illicit trade and capital flight is a surprising outcome and one that deserves to be formalized as part of wider efforts to manage and minimize rent-seeking in Iran.

Photo Credit: Depositphotos

Rouhani Government Unifies Iran’s Exchange Rates in Decisive Move to Stabilize Currency

In a decisive move intended to stop the further devaluation of the rial, the Rouhani government announced it would unify the official and free market dollar exchange rates, settling on an official rate of IRR 42,000.

First Vice President Eshagh Jahangiri made the announcement last night, declaring that trading dollars above the new rate would be a serious crime.  "Just like the smuggling of drugs, no one has the right to buy or sell [above the new rate]... If any other exchange rate is formed in the market, the judiciary and security forces will deal with it," he warned.

"There should not be such incidents in an economy that always has a surplus of foreign currency. Some say interference by foreign hands is disrupting the economic climate and some say domestic machinations are spurring these things in order to destabilize the climate in the country," added Jahangiri.

Earlier in the day, the Economic Commission of Iran’s parliament had summoned Minister of Economic Affairs Masoud Karbasian and Central Bank Governor Valiollah Seif for an emergency meeting regarding the careening value of the rial, which had reached a record low of IRR 60,000 to the dollar.

Speaking to reporters after the meeting, Karbasian continued the government line that the devaluation was not a reflection of the true state of the economy. Rather, he obliquely suggested that the “security agencies” ought to be summoned to explain the real cause for the fluctuations. His comments were an apparent reference to rumors that certain actors opposed to the Rouhani government, likely in the security establishment, were hoarding dollars in order to exacerbate speculation and undermine confidence in the government’s economic management.

However, in the face of this significant political pressure, the Rouhani administration made a bold move, instituting a policy that has eluded the country’s economic planners since the 1979 revolution. Rate unification has long been considered a necessary step to introduce more stability in Iran’s monetary policy and foster a better business environment for the country’s enterprises.

Iran's last major currency crisis of a similar scale took place in 2012. Then president Mahmoud Ahmadinejad similarly blamed psychological factors for the rout, arguing in a speech, "Are these currency fluctuations because of economic problems? The answer is no. Is this because of government policies? Never … It's due to psychological pressure. It's a psychological battle." His government similarly tried to unify rates at IRR 12,260. But sanctions made it difficult to generate sufficient supply of hard currency in Iran, and the unified rate collapsed after just a few months. 

During this most recent currency crisis, the rial had lost about one-third of its value against the dollar over the last Iranian new year, which ended on March 20. The devaluation accelerated beginning in December, and the rise in the free market price of the dollar tracked closely with that of gold. Both gold and the dollar have been typical “safe-haven” investments for Iranians wishing to hedge against inflation and general economic uncertainty. However, inflation had remained flat over the previous twelve months, and real estate prices were relatively stable, suggesting little change in the purchasing power of the rial. The net effect was a rampant devaluation more akin to a bubble, fueled by rising doubts among Iranians about the survival of nuclear deal.

Though clearly responding to the recent turmoil, the Rouhani government had already begun the groundwork necessary for such a unification. In March of last year, Catriona Purfield, a senior economist at the IMF, suggested that Iran could perhaps unify the rates earlier than expected, stating, “Half of imports have been put on the market rate and most of the goods are now at the flexible rate. Interbank FX market has been reestablished. Therefore all the elements are there, so an early move is possible.”

The new rate of IRR 42,000 is closer to the rate economists expect would be necessarily for unification. Economists Mohsen Bahmani-Oskooee and Sahar Bahrami looked at exchange rate data from 1979 to 2015. They concluded that had Iran’s rial been allowed to depreciate in accordance to changes in purchasing power parity, the exchange rate in 2015 would have been around IRR 47,000. The rial’s purchasing power has been relatively stable in the last few years and so this is likely a fair estimation of the current dollar rate in PPP terms.

Yet, despite the clear economic rationale behind the rate unification, it will remain to be seen whether the political gamble pays off for Rouhani. The official exchange rate presented a lucrative arbitrage opportunity for quasi-state actors, who could purchase dollars at the lower official rate then sell the hard currency on the black market. These entrenched interests will no-doubt see the unification as a direct challenge by Rouhani, and a further example of his administration's continued efforts to reign-in rent seeking in the economy.

But for the general public, such a confidence-inspiring move should serve as an indication that the Rouhani cabinet, despite the claims of infighting and mismanagement, remains capable of the kind of coordinated policymaking necessary to reform the economy.

Photo Credit: Vahid Salemi