Iran’s currency market has recently experienced many fluctuations. It is certain today that the euro is unrivaled in the free currency market and the dollar nears the end of its happy days. The currency market has been affected by international occurrences and economic analysts believe that, with international tensions coming to a climax, these fluctuations are set to increase. In this midst, Iran’s currency managers must act in a way to decrease the impact of these fluctuations on the country’s economy.

Head of the Central Bank’s Institute of Monetary and Banking Research, Dr. Ahmad Mojtahed, believes that Iran’s floating currency system absorbs the fluctuations of the world’s currency market to a large extent. In another words, the floating currency system has features that allow it to easily withstand currency fluctuations and prevent it from damaging the country’s economy.

Mojtahed stated that approximately 45% of Iran’s foreign currency dealings are conducted in euros, 10% in yens and the rest in dollars. However, most of Iran’s currency revenue (which comes from crude oil exports) is in dollars, which has lost some of its value against the euro. This means that Iran’s currency has lost its value in euros and with it some of its purchasing power. This has led to the euro being exchanged at up to Rls 8600 (7.5¢ over the dollar).

Dr. Abbas Hashi, member of Shahid Beheshti University’s educational board, stated that the dollar’s devaluation has led to the decrease of our purchasing power because our currency reserves are in dollars. When asked about euro bonds, Hashi said that the devaluation of the dollar before the euro has increased Iran’s virtual debt because we are earning dollars and spending euros.

Hashi emphasized the need for appropriate management of the currency basket and stated that unfortunately, due to mismanagement over the past 30 years, we have not been able to decrease the country’s dependency on oil income and of the $400 million earned in oil exports over the past 22 years, only 20% of it has been invested.

Many economic analysts are convinced that it is the oil currency that has led to the country’s economic impotency. Dr. Bahman Arman, an advisor to the Minister of Finance and Economic Affairs, said that we couldn’t establish a currency management system with oily dollars as most of these dollars are spent on essential imports. A currency management system is possible when we are not dependant on oil for our currency revenue, and oil income is invested in other sectors of the economy and Iran’s currency basket is filled from non-oil exports.

Arman continued to say that many oil-rich countries, such as Mexico, Indonesia, Saudi Arabia, United Arab Emirates and Kuwait have been able to invest their oil income in foundational industries and can now easily rely on their non-oil currency revenue to experience the least problems from the world currency fluctuations. Two-thirds of Iran’s oil revenue is spent on the import of essential supplies, and in recent years only 25% of the revenue was invested in foundational industries. If this trend continues, the country’s currency basket cannot be transformed.