After much haggling between the executive and the legislative branches, the Iranian regime’s Majlis (parliament), approved the government’s plan to remove the “42,000-rial dollar” exchange rate, also referred to as the “preferential currency,” in the budget of the upcoming Persian calendar year (starting on March 20).
The decision was met with alarm from state-run media and the regime’s own officials, who are warning that the new monetary policy will have an immediate negative impact on the economy, and reduce the people’s purchasing power, many of whom are already struggling to make ends meet.
The plan to restructure the currency policies is surrounded with ambiguities, loose ends, and plenty of space for embezzlement by entities and individuals that have close ties to regime officials.
The 42,000-rial policy
In early 2018, the rial took a sudden plunge, dropping from 42,000 to 50,000 to the U.S. dollar. At the time, the regime opted for a policy of multi-priced currency rating. The official government rate pegged the rial at 42,000 to the dollar, while the free-market rate, adjusted based on supply-and-demand dynamics, continued to plunge and near the 300,000 mark.
The regime’s declared policy was to regulate the currency exchange rate to prevent the fluctuation of the prices of fundamental goods and protect the population against economic upheavals.
But in effect, the new policy created a black market run by regime-backed entities, which purchased dollars at the government rate to import vital goods but made huge profits by selling them at the free-market rate.
Initially, the 42,000-rial dollar was supposed to be allocated to dozens of items. By mid-2018, the list was culled down to 25 items, and eventually further shrunk to only seven items, including basic food items (oats, wheat, corn, raw oil, soya, etc.), medicine, and medical equipment.
But even the prices of those items were not spared from the major fluctuations in the currency exchange rate, and they all saw enormous rises as the country’s economy continued to stall under the corrupt rule of the mullahs. As the people became poorer and their dinner tables continued to shrink, regime entities grew richer and continued to profit from the currency black market they had created.
The new monetary policy
As Ebrahim Raisi prepared to assume the presidency, he declared that his government would drop the 42,000-rial policy, ostensibly to fight corruption. But the regime’s own experts are warning that at the current point, the new policy will only cause more economic shocks and other channels of corruption.
The government included the new monetary policy in the budget bill for the upcoming year. After much back and forth between the Majlis and the government, lawmakers eventually approved the plan on March 6, with the caveat that the government presents a plan to manage the price of goods that will be affected by the new monetary policy.
According to some reports, the removal of the 42,000-rial dollar will save the government $9 billion that was previously spent on subsidizing the import of basic goods. But how will the regime address the economic shock that will entail the new monetary policy?
Vague plans
So far, the regime’s plan is to subsidize the price of goods by distributing electronic coupons for the affected goods. But given the mafia-run structure of Iran’s economy, with most levers being in the control of the Revolutionary Guards, experts are warning that coupons will eventually create a new black market not much different from that caused by the preferential currency. Regime-backed entities will continue to make profits while the needy will be deprived of the subsidies they need.
Another plan being deliberated is the readjustment of government cash handouts. The regime will reportedly remove the higher deciles of the society from the cash handout policy while increasing the handouts to the lower deciles.
But this plan faces two major hurdles: First, the plan is missing details on how recipients are qualified, and second, it is not clear how it will be funded, given the major budget deficit that the regime is already facing.
In this regard, the state-run Jahan-e Sanat newspaper wrote on March 7, “The Majlis and government both know that these figures won’t cover the country’s needs. The yearly consumption of wheat is 11 million tons. Wheat that was being purchased with the 42,000-rial currency will now be purchased at rates that exceed 200,000 rials to the dollar. It’s improbable that the government will be able to give enough handouts to the people to enable lower deciles to purchase these goods. The real issue at hand is the profits of the government and the treasury.”
On the same day, the Jomhouri newspaper warned, “This decision by the Majlis, taken with the insistence of the government, will cause a sudden surge in the price of basic goods. Proposed solutions such as coupons and credit cards will not solve the problem.”
And the Aftab-e Yazd newspaper wrote that the removal of the 42,000-rial exchange rate will only benefit the people “on paper.” “In the long run, the people will suffer greater and growing pressure because the decisions made by the economic bands are based on wrong legislative grounds and create corruption.”
Fear of protests
The main factor that has delayed the regime’s decision to implement the new monetary policy is the social impact and the implications it can have for the regime.
In 2019, the sudden increase of gasoline prices triggered the largest nationwide uprising since the 1979 revolution and pushed the regime to the verge of total collapse. Since then, economic conditions have worsened, and the regime is faced with regular protests that start with economic motives but quickly turn into political protests that call for regime change.
At present, regime officials fear that another nationwide economic shock will cause a wave of protests that will be just as intense as the 2019 uprising.
Alireza Beigi, a member of the Majlis, warned on March 7 that people are in extremely poor living conditions and the elimination of the fixed-rate currency will have “very dangerous implications.” “We must be careful that the increase in prices will not cause a repeat of the 2019 protests,” he said.
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