Sanctions & Foreign Currency
The prevalence of rental and export cards without identity is the
outcome of a mechanism that created an exchange rate difference
between the NIMA system and the free market.
In a country whose market is governed by economic logic, the return of
foreign exchange from exports is obvious. But Pedram Soltani, a former vice
president of Iran’s Chamber of Commerce, Industries, Mines and Agriculture,
criticizes the government’s and the Central Bank of Iran’s prescribed
policies to untie the knot, citing obstacles to the Iranian exporter.
As you are aware, the President, the vice president and the CBI governor
emphasized the return of foreign exchange from exports and called on
exporters to bring the forex back to the country. What is the logic of this
“Foreign currency shortage” is the clear answer to this question. Due to the
tightening of the sanctions, falling global oil prices and the impact of the
coronavirus, which has doubled the demand for petroleum products, the
government’s foreign exchange earnings from oil exports have fallen to
unprecedented levels. As Mr. Es’haq Jahangiri (VP) said, last year there was
only $8 billion in foreign exchange earnings in the country, and this year
this figure is optimistically estimated at $4 billion, which could go down
to $2 billion. This figure is comparable to previous years, which usually
averaged $40 to $50 billion and in some years even $100 billion. This sharp
drop in government’s foreign exchange earnings has severely disrupted the
country’s foreign exchange balance and made it increasingly in need of
non-oil export currencies. Therefore, the main reason for such a problem is
the lack of government’s foreign currency and a significant cut in the
country’s foreign exchange earnings.
But why does not the foreign currency from exports return to the country,
which has become a challenge for the government? Do the obstacles posed by
sanctions prevent this or economic common sense?
In a principled economy and in a country that has a stable economy and its
banking system has connections and currency exchanges with various world
countries, the foreign exchange earnings of the enterprises of that country
must return to that country itself. This does not mean a special or unusual
task, but it is like a company that sells its goods receiving revenue and
money from the sale. In exports, this is due to the sale of the forex, and
in an economy that is not in crisis, it will usually be credited by the
buyer to the exporter’s foreign currency account.
But as for Iran, due to the severance of the banking system with the world
in the last decade (apart from a few openings after the Iran Nuclear
Agreement formally known as the Joint Comprehensive Plan of Action) official
and legal channels for foreign exchange to enter the country have been
blocked. Therefore, neither our foreign exchange trading transactions can be
tracked nor there is any possibility for the forex to enter the country.
There is only one way used by exchange shops to transfer money from exporter
to importer via companies whose exchange offices in other countries have
established for this relocation. This demand of the CBI and the government
for the import of foreign exchange from exports is not a strange and
unreasonable issue and is common all over the world. But unfortunately,
everything in our country is out of principle and today the CBI and the
government are trying to return forex to the country by using force and law.
Under normal circumstances, such a procedure should have taken place in the
country, and the exporter who sold the goods or services needed to bring his
money into the country and convert it into rials in order to put his capital
back into the economic cycle.
An important question for government officials, who are
constantly boasting about bringing in export currency (which, of
course, is true), is what do they want to do to stem the flood
At present the exporter is doing the same but due to the strictures that
took place in 1397 (2018-2019) and the sudden stroke on exports, this
process went out of the way and was placed in a framework in which some
people using rented trade cards exported goods without fulfilling their
foreign exchange obligations. Although the foreign currency of such exports
somehow reached the exporter and part of it returned to the country’s forex
cycle, it did not enter the expected cycle of the CBI. The CBI expected the
currency to be spent on imports, while it could return to the country’s
currency cycle and be handed over to various individuals such as those
migrating from the country, foreign investors and people buying houses in
other countries. But this does not cure the pain of the country and the CBI.
In addition to obstacles such as problems with financial transactions, does
this difference between the free market exchange rate and the
government-declared currency rate motivate the exporter to return his
foreign exchange earnings to the country?
This is exactly the point of the lawsuit. The exporter must be able to sell
his foreign currency at the free market rate like any other currency holder,
otherwise his motivation to return the forex to the national foreign
currency system will diminish. That was exactly the shock of 1397.
The exporter was told to hand over his foreign currency at the rate of
42,000 rials (for one US dollar), while at the same time the forex in the
open market was around 53,000 rials and by the end of the first six months
of 1397 it was higher than 110,000 rials. This order lacked logic and
motivation for the exporter. After that, the NIMA system was launched and
the great emphasis of the private sector was for the government not to
manipulate the rates so that exporters and importers could trade foreign
exchange at a balanced, optimal and competitive rate.
(Editor: 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
This system first motivated the exporter but unfortunately the price of the
NIMA system was also manipulated and the previous routine continued, and by
the end of 1398 (2019-2020), there was an obvious gap between the price of
the free market and the one offered by NIMA system. This caused, firstly,
not enough motivation for the exporter to transfer his foreign currency to
the NIMA system, and secondly, there was a false demand from importers. The
importer felt that he could buy a commodity at a forex below the real market
price and trade in the market at a free exchange rate. This was an
attractive deal and importers created more demand for the NIMA system than
Managing and controlling this volume of demand, screening, prioritizing and
delaying them was a source of corruption and trouble for the Ministry of
Industry, Mine and Trade and the CBI, which led to dissatisfaction and
consequent shortages in the market, because the CBI and the Ministry of
Industry, Mine and Trade are not magicians to allocate the exact amount of
foreign currency to a certain commodity needs to supply the market so that
the market does not face a shortage in the coming months. Therefore, the
difference between the NIMA rate and open market rate last year reduced the
exporter’s motivation and, to some extent, reduced the amount of exports and
was effective in preventing the return of part of the export forex to the
country’s trade cycle.
You mentioned rental and single-use business cards. Many believe that the
issuance of such cards has created speculative incentives in some people. Is
this policy effective? What are the market implications?
diverts the flow of trade from its professional path and, in other words,
creates an abusive current that harms the national interests of the country,
well-known and experienced merchants and traders, and in the eyes of public
opinion, damages the exporter’s reputation. An exporter who returns his
foreign currency to the country is not able to compete with a person who
operates with a rental card. Because the former has to sell his forex at
NIMA rates and the latter sells his at the open market price.
This competition narrows the field to the market and deprives the real
exporter of the power of competition. Our problem in the country and in all
these decades is that any document and license that can obtain money without
capability, art, skill or competence is a corrupt and harmful document to
the economy and the market.
This document can have any name, including a business card, which provides
access to the rent foreign currency of 42,000 rials, and can also provide
the possibility of selling export foreign currency at the free market price,
or it can be a license to receive a loan with a very low interest rate. Many
businesses have emerged in recent years, merely falsely and with the sole
purpose of obtaining special loans with very low interest rates of 4%, in
the form of paper companies or paper companies that earn income by receiving
economic codes and transferring them with the motive of tax evasion.
In countries with more principled economic governance, permits are issued
only for activities that are tied to human or environmental health, such as
food or medicine or environmentally destructive and polluting activities.
But unfortunately, our country is in a situation where the government wants
to run the country with any force; a stone has fallen into the well and the
government is trying to remove this stone while self-deception is not a
ploy. The ruling ideology has left the country in this state and disrupted
trade and exports.
Hassan Rouhani used the phrase “foreign currency belongs to the government.”
Does this statement have a legal basis?
It is better for lawyers to answer this question, but this is one of the
risks that have caused a lot of damage to the Iranian economy over the
years. This line of thinking has been repeated since the beginning of the
(1979) Revolution, when people’s property was confiscated and it was
announced that foreign trade and large industries belong to the government,
until today, when we are in a tight spot they speak about foreign exchange
belonging to the government. This statement of the President is neither
helpful nor useful. The people who did not return their foreign currency to
the country, some of them encountered problems that need help to resolved.
Some exporters have their assets frozen due to the sanctions or have
problems with buyers and have been badly deceived.
Currently, the situation is such that the exporter has to trust the buyers
and cannot rely on letters of credit. As a result, the risk of exporting and
loss of money is very high. So for this group, even if the government wants
to send them to the gallows there will be no result. Others have done so in
order to avoid the obligation to return the foreign currency and by using
rental export cards, whose owners have generally disappeared or are
uninformed persons who have been abused for a small amount of money. In
these cases, too, the work of the government is very difficult, and a long
judicial process must be completed, which may return a small part of the
foreign currency. Therefore, this type of exposure does not work at all. The
prevalence of rental and export cards without identity is the outcome of a
mechanism that created an exchange rate difference between the NIMA system
and the free market.
Since the winter of 1398 and with the entry of Iran in the FATF (Financial
Action Task Force) blacklist and the corona pandemic, the country’s trade
cycle, i.e. the return of export foreign currencies, has been disrupted more
than before. Iran’s inclusion in the FATF blacklist has created more
friction for export earnings, especially for distant countries. The corona
epidemic also made trade difficult, and while exporters shipped goods,
importers were unable to receive them due to the closure of customs or could
not sell goods due to the closure of industries and factories.
These issues delayed their payment to Iranian exporters or caused disputes
between importers and exporters. But these reasons and delays are ignored by
the government and the CBI. In 1399 (2020-2021), these two institutions
behave exactly like last year, while the situation in the country in the
first three months of 1399 is not comparable to the same period last year.
Recently, however, the CBI governor said that forex holders should return
70% of the currency for the time being, which seems to have noticed a
deterioration in the situation. This year, exporters need more time to
return the foreign currency.
Another point is that in the last quarter of 1398, we faced a fall in the
prices of our main export goods. With the fall in oil prices, many of the
country’s exports, such as gas condensate, energy carriers, petrochemicals
and energy-dependent and oil-dependent goods, on the one hand, and as a
result of the corona pandemic we witnessed lower prices of raw materials and
minerals, nuts, carpets and the like on the other.
But the registration of the country’s export statistics is based on customs
rates, which are determined once a year or every few years. Therefore, the
customs estimate of the value of exports is more than real, and the CBI asks
the exporter to return the foreign currency to the country’s business cycle
at the same rate as stated on the customs declaration and does not consider
the devaluation of exports. In such cases, serious problems arise and show
that Iran’s foreign trade system is not designed at all to respond to these
In a transparent and competitive system, each exporter enters its actual
export rate on the declaration when the goods are declared and is treated
accordingly. The recently published foreign trade statistics for this spring
show that the value of the country’s exports has decreased by 44% compared
to the spring of last year, but since this statistic is based on the same
stabilization rate stated in the declarations, it must be said that the
situation is even worse and the decline in exports has been at least 60
Assuming that the exporter returns the export currency to the country can
this alone cure the pain of the foreign currency crisis?
The higher the country’s foreign exchange earnings and the stronger the
demand side, the more effective it will be. However, the increase in the
exchange rate in Iran is not a single factor, and the increase in liquidity
and double-digit inflation certainly affect the exchange rate. So part of
this goes back to the forex supply in the market. Of course, the exporter’s
foreign currency is mostly remittance currency and is separate from the cash
currency market of Tehran. What is actually traded in the Tehran cash market
is mostly under microscope and is considered by market observers.
The reason why this rate has fluctuated significantly in recent days is
primarily the increase in liquidity, not the lack of export foreign
currency. People wants to prevent the loss of the value of their property.
The capital market, the only government-authorized investment market for the
people, has also become severely inflated and the risk of its collapse has
increased. Other markets, such as forex, gold, cars, and housing, are
controlled by the government, and all routes to liquidity include bans,
restrictions, or special controls.
In a normal economy, a large part of the liquidity should go to fixed
investments (housing, buildings and machinery) and since the country’s gross
fixed capital formation rate is negative and investment in the country is
not done for various reasons and there is no necessary incentive, a large
part of the liquidity has inevitably flowed to the stock market, raising
concerns about when it will collapse. An important question for government
officials, who are constantly boasting about bringing in export currency
(which, of course, is true), is what do they want to do to stem the flood of